Evidence for baumol and bowen the washington post s

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Evidence for Baumol and Bowen The Washington Post s Dylan Matthews has great articles about both Baumol s cost disease and Bowen s rule, and their effect on higher education costs. In one article, Matthews quotes Robert Archibald, an economist at the College of William & Mary, explaining that since colleges must compete for professors not only from other colleges, but also industries where they could be highly paid the wages for professors must increase. This holds true even while productivity is relatively stagnant. Matthews, on the other hand, explain how this expanded wages hasn't happened in the recent decades so it cannot explain tuition increases. However, the author does argue for Bowen s rule. He states, similar to the theory of increasing competition, given the fact that school quality is often hard to determine, schools often signal quality with a high sticker price and large expenditures. This means schools can increase their prestige by raising tuition and increasing expenditures exactly what Bowen s rule implies. Do we see these results empirically? In recent research, Martin and Hill (2014) show that both Baumol s cost disease and Bowen s rule are in effect, though they do note some limitation of measurement. The effect from Baumol s cost disease caused a 23 to 32 percent change in total cost, while the effect from Bowen s rule caused a 29 to 64 percent change in total cost (depending on school type and
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monetary constraints). Overall, they estimate that the combined effects account for 74 percent of public university change in total cost and 63 percent of private university change in total cost from 1987 to 2011.
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  • Fall '19
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