Summary
We examine the empirical research presented by Brian Jacob, Brian McCall, and Kevin Stange in College as Country Club: Do Colleges Cater to Students’ Preferences for Consumption?1 The study examines the sensitivity of colleges to student demand for consumption amenities in the decision-making process of allocating budgets between academic factors and such amenities. The analysis reports on the variation in colleges’ responses in accommodating student preferences as well as providing evidence germane to the debate on normative issues surrounding colleges’ non-academic expenditures.
Jacob, et. al., study how market competition frames the range and level of quality of the services institutions of higher education choose to provide. Recruiting and retention are primary measures of how successful institutions are in matching their service offerings with the preferences of the students they serve. A similar dynamic now operates in the market for hospital services, with a focus on patient amenities in addition to the quality of clinical services. The modeling and results are not framed to provide a value judgement on whether the choice of the level of consumption amenities is appropriate for students. Much of that debate would need to be focused on tracing the final incidence of the alternative expenditures. This is dependent on a complex structure of student tuition, fees, and scholarships along with the impact of governmental subsidies including those found in debt-based funding programs.1
Prior Results
While there exists an extensive literature on the relationship between human capital returns to education and college choice, little research has focused on the workings of competitive market forces in higher education. What results exist report that strong complementarities between student abilities and academic resource bases lead to vertical differentiation and assignment of students across a hierarchy of institutions and this mechanism has strong implications for costs and indicators of educational quality across institutions. As the relative costs of travel and information acquisition have declined, undergraduate markets have become more dispersed in terms of location and increasingly competitive, resulting in more heterogeneity in tuition, scholarship funding, and student quality across colleges. The added dimension to explore is the impact of competition on the provision of consumption amenities.
Using a discrete choice model, the research estimates students’ willingness to pay for alternative college attributes. This produces an array of measures of demand responsiveness explaining the tradeoffs colleges face in attracting students based on the costs of providing alternative mixes of academic and amenity characteristics. Incorporated into the analysis is the choice of price discounting levels in financial aid packaging. Two major caveats should be applied to the modeling and results. First, students may have more difficulties assessing or observing the impact of proxy measures of academic quality, such as instructional expenditures and student-faculty ratios, as opposed to consumption amenities, which they directly confront in terms of housing and dining options and recreational facilities. Secondly, some data categorized as consumption amenities may in part contribute to eventual labor market returns and, therefore, be a form of investment rather than consumption.
Results
A general overview of the research findings are that across the board, the highest levels of willingness to pay for consumption amenities are associated with low-ability but high-income students. On the flip-side, a higher willingness to pay for higher-quality academics is associated only with high-ability students. As the authors note:
These estimates account for selective admissions and financial aid, so these patterns do not simply reflect differences in acceptance or financial aid generosity at schools with different characteristics between students citing “social” versus “academic” factors. The model also includes interactions with the three observable characteristics examined earlier (being male, math score, and SES), so the stronger preference that high-achieving students have for colleges that spend more on instruction is held constant.2
Students looking for institutions with an engaging social scene evaluate positively higher spending on amenities but react negatively to academic expenditures. Students oriented toward academics rank institutions with higher instructional spending positively, but do not respond to higher expenditures on amenities. It should be noted that, as one would expect, having locational amenities reduces the willingness to pay for campus amenities.
The elasticity results following from the estimates reveal strategic opportunities for the competitive environmental segments where alternative institutions reside. For example, a college with marginal students who are wealthy but have low academic ability are likely to face large enrollment opportunities resulting from bumping up expenditures on amenities. This would be reversed at a college with marginal students who were characterized as low-income but highly-accomplished.
In general, most institutions face a tradeoff where shifting resources toward academic quality will generate more interest from highly-qualified students while diminishing interest from the broader admission pool. Shifting resources in the direction of consumption amenities will increase the interest of the entire pool but among lower-quality, higher-income students in particular. These demand changes are demonstrated to be concentrated at the extreme with regard to academics. Stronger positive responses to increased academic expenditures at the more selective schools may result in an arms race toward the top. With consumption amenities, the evidence is more complex. Colleges with low selectivity are associated with only a slightly more responsive enrollment pattern to increased spending on amenities than colleges that are moderately more selective. However, responsiveness to increased consumption expenditures rises with selectivity across higher selectivity levels.
Finally, the model is consistent with producing the direction of change indicated by the demand forces. Colleges with heightened pressures or opportunities adjust in the indicated direction. Institutions with the strongest demand responsiveness for consumption amenities combined with the weakest demand responsiveness for academic spending have the highest expenditure ratio (0.80) for consumption amenities to academic services. Colleges with the greatest demand response to spending only on academics have a much lower expenditure ratio (0.45).
Private and/or Public Country Clubs?
There has been a vocal and sensitive debate concerning the proper role of universities in providing consumption amenities to student bodies. Much of the debate centers on the public sector and whether or not limits on services by type or quality standards should be set as a matter of policy.3 We know that the range of student services and the associated levels of quality have given an expansive menu of options for students. With certain restrictions and requirements, students on any given campus face a vast variety of choices in terms of academic programs, housing, dining, and ancillary services such as career advising and psychological counseling. Are there norms which can be applied to the question of where to draw the lines or how to judge who should bear the costs associated with the provision of the chosen array?
We seem to have some guidelines based upon what the basic nature of the good or service in question is. In economics we categorize goods in two dimensions of rivalness and excludability.4 Rivalness ranges along the dimension of consumption by one individual to sharing by all. Excludability is a technological-based criterion concerned with the ability to ban an individual from consumption of the good. A good which can only be consumed by one individual and is excludable is a private good, e.g., beer. If you drink it, no one else can and if it is in a can in a cooler at the store, people can be excluded from consuming it unless they pay the clerk. A public good is totally nonrival in consumption and consumers can’t be excluded, e.g., a fireworks show. We all can enjoy it at the same time and you can’t stop people from watching. A competitive market works well to efficiently allocate private goods. A competitive market would vastly underproduce a public good as free riders would abound.
Universities can choose to compete in the private market for the private good which is student housing and dining. Or they may wish to try to stake out a non-competitive position in which they require students to consume, at least for some period, on-campus housing and dining. Colleges may also wish to compete with the private sector on a non-competitive basis by using state subsidized bond financing for the investment in the housing and dining stock. What is the rational for a public subsidy to lower the cost of the private consumption good which is housing and dining on college campuses rather than off-campus alternatives?
Colleges and universities are not in the business of providing pure public goods, but most controversial campus consumption amenities fall into the club goods category where rivalry in consumption is low but exclusion is feasible, e.g., they don’t call it the country club for nothing. You and your buddies can all jointly enjoy a fine game of golf without too much congestion, and you have to pay your annual dues and green fees or they will toss you out of those lush grounds hidden behind those high fences. An uncongested swimming pool or recreation center is a club good. These are provided by for-profit competitive firms (LA Fitness) and non-profits (YMCA) who in turn compete against each other by offering differentiated products across consumer segments. If institutions of higher education choose to compete in this market to attract students, the normative judgement should be reserved to reflect the incidence of the pricing structure. Do universities receive public subsidies for club goods as in the case of housing and dining investment finance? Do students pay for access to facilities based on usage or in a general fee assessment? Answers to these questions are critical before making a normative judgement.
A good test of understanding of the outlined issues might be to ask yourself to predict where you are most likely to find a campus country club, i.e., a college operated on-campus golf course? Is it likely to be a country club for students and/or for faculty and alumni? And then in the search for answers in the normative dimensions, how is golf priced at this campus country club? Is there any public subsidy traced back to taxpayers5 in support of this campus country club and if so why?
Notes
- Jacob, Brian, Brian McCall, and Kevin Strange, “College as Country Club: Do Colleges Cater to Students’ Preferences for Consumption?” Journal of Labor Economics, Vol. 36, No. 2, pp. 309-48, University of Chicago Press, (April 2018) https://www.journals.uchicago.edu/doi/abs/10.1086/694654
- Ibid., 334.
- For a perspective from an economist who has held the presidency at two large public universities see: Koch, James, “No College Kid Needs a Water Park to Study”, New York Times, (9 January 2018) https://www.nytimes.com/2018/01/09/opinion/trustees-tuition-lazy-rivers.html
- Beggs, Jodi, “Private Goods, Public Goods, Congestible Goods, and Club Goods”, ThoughtCo., (31 October 2017) https://www.thoughtco.com/excludability-and-rivalry-in-consumption-1147876
- As opposed to alumni who may be getting an indirect tax-based subsidy through their tax deductible charitable contribution.
Related topics: recruitment | retention | students
