What do classroom spending decisions reveal about university preferences?

Every semester, a university decides which undergraduate courses to offer and how much to spend on instructors for these courses. These choices determine how efficiently resources from governments, donors, and families are used to benefit students; however, very little is known about how universities make these decisions. In this paper, I develop methods for understanding how universities make these classroom spending decisions. My methods focus on comparing the university’s preferences to the preferences of enrolled students. I apply my methods to administrative data from the University of Central Arkansas (UCA) and find that UCA has institutional preferences for decreasing enrollment in introductory business courses and increasing enrollments in introductory humanities and STEM courses. These institutional preferences lead UCA to make classroom spending decisions which are not aligned with student preferences. One counter-factual simulation shows a revenue neutral tax and subsidy policy which reduces the cost of offering introductory business courses and increases the cost of offering other introductory courses can induce UCA to offer courses that maximize student welfare. A second counter-factual simulation shows UCA could achieve the same student welfare at 38.5% of original costs in the absence of contractual constraints. Preliminary and incomplete. Please do no cite. ∗E-mail: [email protected]. I am deeply indebted to my advisor Peter Arcidiacono and committee members V. Joseph Hotz, Robert Garlick, Hugh Macartney, and Arnaud Maurel without whom this work would not be possible. This project has also benefitted from useful feedback from participants in the Duke Labor Lunch Seminar. All remaining errors are my own.