Measuring "Outputs" in Determining Funding for Universities

At many universities (inclugin the University of Calgary), funding is often decided basedo n inputs: how many grants individuals/institutions have received, how many students are attending, etc. While there are funding decisions based on outputs (number of publications by faculty, donations from alumni (considering graduates as an output form the unversity), funding decisions at the provincial and federal levels are often basedon what I would consider inputs. In the U.S., there are proposals to make funding for universities based on their main output good:

Lawmakers in Ohio appear likely to adopt a plan, introduced this year, that would base 100% of higher education spending on course and degree completion. Indiana is considering a similar but more modest proposal. And in Louisiana, the governor and Legislature have called for plans that tie 25% of higher education funding to student success.

The concept of rewarding institutions that meet certain goals has been around for about 30 years, but the newer proposals focus more on student outcomes and involve more money.

The renewed interest reflects a growing concern that the USA has fallen behind other countries in college completion rates at a time when higher education is more important than ever.

Other states have similar programs:

Strategies vary with state priorities, says Brenda Albright, an education consultant in Franklin, Tenn., who studies enrollment-based funding.

• Ohio and Indiana are targeting degrees in science, technology, engineering and math.

• Missouri's department of higher education has proposed a plan to finance schools based on how students in allied health and other fields fare on state licensing exams.

• Washington state's board of community and technical colleges plans to reward schools when students cross certain hurdles, such as completing 15 credits and passing math, along the way toward earning a credential.

Some early adopters, such as Florida, have seen results. From 1997 to 2007, Florida's community-college completion rates shot up 43% while enrollments rose 18%.

Such policies would imply that universities with low completion rates would experience funding cuts. This may be an appropriate way to help divert resources to better institutions. I am curious what this type of policy would imply for programs within an institution. I don't know what the results look like for other fields, but in economics, the American Economic Association has a study which looked at completion rates in economic graduate programs. As expected, lower ranked universities have lower completion rates in economic graduate programs. (These lower rates may be due to selection, competition for the higher tiered schools, or the smaller programs at some universities.)

As noted earlier, 27 percent of the 2002 entering class had completed work on their Ph.D. within five years of matriculation. Thirty-four percent of the original cohort had dropped out by their fifth anniversary, leaving 39 percent still toiling in the academic vineyard.3 Based on a sample of 1,154 economics Ph.D.s who graduated in 1996-97 and 2001-02 (two cohorts who all completed their degrees during the same years), Siegfried and Stock (1999, 2004) found that 41 percent of those who eventually earn a Ph.D. degree, do so by the end of five years. A similar completion distribution for our 2002 entering class sample, adjusted for likely attrition at our disproportionately higher tier sample programs, implies an eventual completion rate around 60 percent for all 2002 economics Ph.D. program entrants.

Completion falls monotonically as program rank declines, ranging from a five-year completion rate of 33 percent for the three Tier 1 programs in our sample, to only 17 percent of the entrants into programs ranked below 48th (Tier 5). Given their higher completion rates and because Tier 1 and Tier 2 programs appear to better avoid attrition among their students than programs in lower tiers (the Tier 1 and 2 two-year attrition rates average less than 18 percent of entrants, while those of lower tier programs are above 32 percent of entrants), we group Tier 1 and Tier 2 programs together when estimating completion. Because five year completion rates of students in Tier 3 and Tier 4 programs are similar, but those for Tier 5 programs are much lower, we group programs in Tiers 3 and 4 together, and use that large group as a benchmark.