Managing Public Higher Education Restructuring: Understanding College and University Cost Structures

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This paper focuses on understanding college and university costs as a prerequisite for successfully managing ongoing issues associated with restructuring publicly provided higher education. Restructuring is well underway as a result of globalization, the European led Bologna Declaration, and U.S. nationally competitive forces. It potentially affects the mix and level of products that colleges and universities produce. To capture the possible cost implications of those changes, multi-product cost functions are empirically estimated for four levels of U.S. public colleges and universities: doctoral, master, bachelor, and associate degree granting institutions. Scale and scope estimates are derived for research and three teaching outputs, including undergraduate, graduate, and professional education. Findings regarding product specific economies of scale suggest that government reforms to place enrollment growth at lower level associate colleges may increase the costs of providing public higher education. In contrast, reforms that create more specialized institutional missions could generate cost savings. While the empirical estimates pertain to U.S. colleges and universities, the lessons of experience in one country can be valuable to others.