Could Be Special Pleading on Higher Education

Michael Giberson

The Wall Street Journal reports on recent efforts to make sure that taxpayers are getting their money’s worth from state universities.  Acknowledging that his comments “could be taken as special pleading,” a blogger who is also a Texas state employee providing university students with advanced instruction in financial economics offers his insights about the “perils of high powered incentive systems in multi-task environments, something first analyzed rigorously by Holmstrom and Milgrom in JLEO in 1991.”

Our financial economist sums up the idea as: “In many ways, this multi-tasking problem is captured by Einstein’s aphorism that not everything that counts can be measured, and that not everything that can be measured counts.”

The challenge for administrators is that, in addition to all of the other wonderful things that universities are, they are also economic enterprises with revenue streams and cost streams and somehow these base considerations must impinge on operations. The challenge for administrators is that it is hard to impinge on operations in a coherent way.