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Fascinating commentary Nick. The implications for resource allocation are very interesting. Just for fun I forwarded to friends at McGill's Physics dept -- maybe they will beat Economics and Business to a similar model there.

Interesting - a complex process. But, after all of the effort - coming to a sol'n that appears to be working, what would happen if the final allocations of teachers/students/classes etc were then subjected to the same spreadsheet T A&M exercise - and the data made public?

Would it help/have helped the process, or would it throw a whole new wrench into the works? I can see merit in analysing it internally within the university - not sure the sausage making process would benefit from public spreadsheets.

Large firms face similar problems. Within the firm resource allocation starts to look and awful lot like central planning.

finance: thanks! My prejudices say the physics profs will catch on more quickly than most.

JVFM: I think the data should be made available to the profs. And if you make anything available to all the profs, you've effectively made it public.

Even if you don't act on it in any way, making the data public has some good consequences.

First, because the average department and average prof always seems to think they teach more students than average. Dunno why. Maybe one of those standard cognitive biases, or maybe just a Lucasian signal-processing problem, in a world where student/prof ratios are rising, and each prof sees his own ratio but has lagged information on the average ratio. But whatever the reason, it was true in my experience.

Second, because purely symbolic rewards matter too. Research gives you status (as well as money, through outside offers); teaching large classes gives you none. (See Frances' last post and comments). Being able to hold your head up and say you are making a profit for the university gives psychic income, that offsets some of the disincentives.

Patrick: absolutely right. Coase got a Nobel for saying what you just said!

This was really interesting. Why not do like a 4 year average base?

jsalvati: Thanks! A 4 year average base makes sense. (But central planners think 5 years is always the right number). My memory has failed. I think we did something like that. But all it does is take an average of the problems associated with a zero base and a current year base.

I was thinking the same - internal publishing would eventually become public, through even FOI requests (I think it applies to universities). But, there is a difference to proactively publishing the data.

I could see why some universities would want to be proactive - say one dept head was adamant in not giving up one pet area of study. Nothing that a bit of public scrutiny couldn't easily resolve.

Nice post! I'll bet you're happy to be able to turn the tables for once! But: "The biggest problem is the base year." Since the problem seems to be an unacceptable rate of change, what's wrong with

exp(-at)base + (1 - exp(-at))zero

With suitable choices for reversion speed a and initial time t?

Phil: thanks. Yes, it was lovely to be able to turn the tables, and say something to other people that commenters say to me, about practical real-world experience.

Your idea of steadily changing weights so there's slow adjustment towards zero based budget was almost exactly the one I proposed on the Nerd's Committee. But it was ruled out as far too complicated for most of the departments and Faculties to understand. Even very simple carrots are too complicated. My hope is that, in the long run, steady overall growth will make the historic base less and less relevant. So we will end up with something similar to declining weights in practice.


"This is most true for departments in subjects that economists' prejudices tell us are less likely think like economists. All the usual suspects took a long time to figure out the Summer Incentive Plan and respond to it."

I love this idea of (forcible) expertise-sharing across departments. Are there any associate deans from the English department cooking up a scheme to make the economists learn how to write and speak better? (you, I think, don't need this help but plenty of economists do)

Nick, great post! Of course you realize that, in the Texas A&M scheme, your administrative work - which is far more valuable than some prissy little boutique course - would count for nothing.

Frances, in the command economy known as the private sector, we have a solution for that too, namely internal transfer pricing. And yes, we all complain loudly about these monopoly providers!

Leigh: Oh God! And the sentence of mine you quote contains a grammatical (and I needed spell-check there, for 2 m's and 1 t) error! It should be "...less likely TO think like economists.."

Yes, we need help from outside. But the English department would probably be talking over our heads, plus not taken seriously enough by us. Many more of us took Dierdre McCloskey seriously, about the importance of good writing (I know I did), even though a lot of what she said went over my head too.

Thanks Frances! Yep. All pricing schemes leave some stuff out. Which is why you either make them incredibly complex, or keep them simple but add a discretionary fund for the stuff that gets missed.

Nick, good stuff. Enjoyable to read these sorts of bricks and mortar articles since they bring it all back to reality.

Faculties sell a product, just like everyone else. Linking their respective share of total firm resources to their sales output probably makes a lot of sense. A teacher can sell more education if they make their course more interesting, remove seating limitations, add scheduling flexibility, or if they offer easier marks. Hopefully not too much of the latter.

Quite interesting and totally believable. Are there any institutions where research is anywhere as important financially as it is academically?

Apropos point 7, Nick, what importance do you attach to the absence of an obvious stick, in the original Summer Incentive Plan, and in the full-year plan? Would people have been more easily convinced that the carrot was a carrot if there was a stick, too? Would the plan have been more or less successful with a stick as well as a carrot, do you think?

There are two types of profs, tenure/tenure track profs who are extremely costly to fire, and sessional profs who cost a few thousand dollars per course and can be hired and fired at much lower cost.

How many students does it take to pay the salary of a sessional prof+other related expenses? Isn't the number in the 10 to 15 per course range? So when sessionals are teaching 70, 100 students, aren't enormous rents being generated?

Who is capturing them?

What would be the implications of a different division of the surplus created by sessional profs?

What a beautiful post!

A long time ago when I first entered univ. I used to have debates about this with my prof. In the community colleges, class sizes are smaller, and professors teach 5-6 classes. At the university, they teach two classes -- to free up time for research.

Simultaneous to that, they hire lecturers to teach the intro classes. And the cost of the hiring the lecturers exceeds the cost of the research grants obtained. A big state school like Texas A&M is probably getting only 20% of their revenues from research grants.

But 100% of the faculty hiring decisions are based on research, and the relative pay of the lecturers vs. the faculty reflects that priority.

At the time, the explanation was that some revenues are not counted -- "sunk" revenues? For the department and also in some sense for the school, the teaching revenues are exogenous, but the research revenues are not. In that way you can spend a billion to build a public institution, and then someone else comes along and dangles a hundred million in front of that institution, and the whole enterprise re-orients itself at getting the additional revenue. Now you are spending a billion to buy a hundred million, and marginal revenue is less than marginal cost.

very interesting post... i wonder if this has the effect of reducing the number of terms it take for a student to get through the system - since students have more choice and are less likely to be excluded froma course they want or need in order to do some other course, but is not part of their major.

i would think that a 4 year average, starting with the current year, would make sense, and then factor the average from 100% down to 90%, particularly if admissions grow.

the real problem i have with canadian universities and government planning is this: we have a shortage of doctors - 2.2 per 100, while the oecd average is 3.0. rather than increasing the number of slots in medical schools, the focus has been on immigrants and "credentials recognition" instead of increasing the number of graduates by 50%.

the provincial governments prefer the status quo, as a means of rationing healthcare indirectly, by limiting doctors. the real challenge should be to get some faculties to reduce the number of students taking general arts or things that are not in demand (generaly, those who atrract the students with the lowest high school marks is a good indicactor of market demand) while increasing the number of people graduating from those faculties that have students with the highest marks going in.... medicine, engineering, etc.

I have to say the idea of having the money follow the students sounds good.

Year 1: Economics department offers dumbed down but popular courses (Freakonomics 101 - why driving drunk is a better idea than walking home drunk?) and draws in lots of students.

Year 2: Tired of being short of cash, Languages decided to fight back and embarks on a 'the customer is always right' strategy in which all students are awarded 100% for every course. Enrollment booms.

Year 3: Economics department also guarantees all students 100% in every course and in addition starts offering students cash bonuses (down to the point that marginal revenue = marginal cost) to take their courses.

Year 4: All department guarantee 100% grade with no attendance required and cash back to the student.

Year 4: Economist overseeing program sees that all deadweight losses have been removed from the now perfectly competitive market and declares the program a success.

JP: trying to get different departments to have consistent grading standards was another of my attempts at central planning. Less successful. An econometrician colleague did an enormous econometric study for me. "Operation Birdhunt". Two-way fixed effects model(?) of grading across the whole university. A dummy variable for each course (or maybe each subject?), and a dummy variable for each student. You have to have a dummy for each student because high grades might mean it's a bird course, or might mean it attracts very good students. So you have to estimate the easiness of each course and the ability of each student simultaneously. The supercomputer actually solved it. But few of the results were statistically significant. Not enough mixing in the data set. Science students not taking enough arts courses, and vice versa, so the data could not estimate it accurately enough.

But I didn't see any evidence to correlate grades with desire to attract/repel students. It was more just differences in local customs across disciplines. Some are softies, some are toughies.

Lord: a university's success in getting research dollars is great for its prestige. But AFAIK, it's usually teaching that brings in the revenue. And undergraduate teaching at that. Grad students bring in about twice the revenue per student (less for MAs, more for PhD's) but cost more than twice as much to teach, given much smaller classes, not to mention the scholarships you need to attract them.

Greg: in most cases, the only stick we could implement was not giving them the carrot. Departments believe they have property rights in resources they have already been allocated under central planning. Plus, it's very hard to fire profs. You can fail to replace them when they retire or quit, but even that is hard, politically. One of the big benefits of an "incentive plan" is that by calling it an "incentive" you get the legitimacy to take it away if their student numbers drop. But an incentive plan that actually had negative payments...no way. That's why we couldn't do zero-based budgeting.

Frances: Remember, we call them "contract instructors" now! The word "sessional" was banned a few years back (not sure why).

Under the old Summer Incentive Plan, with the old contract instructor rates, when I was running the shop, the break-even class size was about 15 students (I used to know it to the first decimal place). The new plan is more complicated. It depends on which students are in the class.

Carleton is very lucky in having a big pool of some very good contract instructors in Ottawa, willing to work for lower rates per class than regular faculty salaries. (And many of them are people we really want to have teaching for us, and who can't be doing it for the cash.

Who gets the rents? Good question. I think the students get most of them. Faculty probably get some too, in the form of teaching smaller classes than we otherwise would have to teach. My guess is that faculty salaries would not be much lower if we had to pay more for contract instructors.

RSJ: Modelling universities as a Yugoslavian worker-controlled cooperative is not far off the mark. Where it's the regular faculty who are the subset of workers who own the firm. And faculty want prestige, and status, and want to be part of a high-status university. And status means research. (Economists don't pay enough attention to status as a motivator, I think).

btg: I once persuaded the university statistician/econometrician to do a study for me: to see if the last 2 digits of the student's ID number predicted retention. My theory sounds totally daft, but it isn't, because we let students register in courses in order of the last 2 digits. Every year we change the order back to front, but one year we forgot. So I had a natural experiment. But he couldn't find any significant difference. (The computer techie who ran the program allocating student ID numbers thought I was absolutely nuts when I phoned him to ask if the last 2 digits had any meaning.)

The government faces one big problem with the current "voucher" system. It is very hard to have a voucher system that promotes competition for students between universities, and at the same time puts an upper limit on the total number of vouchers in a particular subject area, like the BA.

There used to be an upper limit for each university. But that caused a lot of lobbying by individual universities to get their limit raised, and prevented competition between universities. We do have limits at the graduate level, especially binding at the PhD level.

Declan: but remember, all a good "incentive" plan does is remove the disincentive. Departments don't necessarily care about absolute size, only about the student/prof ratio, and a good pricing system should make that independent of size. And departments also want to teach *good* students. So you might think there would be a tendency to water down the courses, and grades, but it doesn't seem to happen.

NR, allow me to be devil's advocate and take your Barney example. You state:

The very worst case I saw was when Barney was cancelled. Barney, a very large first year course, about dinosaurs or something, was one of the most profitable courses in the university. And it was cancelled, by the department.....to save money.

Now, notwithstanding that paleontologists may not be in great demand, how can this be viewed as "one of the most profitable courses in the university"?

Aren't you really saying, that given that a BA requires x many of credits, (and overall admission levels were predetermined before actual course selection by individuals) this was the cheapest way of delivering one credit? I can expound further.

"Departments don't necessarily care about absolute size"

They don't? I'm also skeptical if we really know whether or not courses are being dumbed down and what the contribution of various campus programs might be to the educational standards.

But I agree that if you can remove perverse incentives then that is all to the good. I was just highlighting some of the potential downsides. Your story reminded me of this New Yorker article about the U.S. country with the highest health care spending in the country and the risks of introducing monetary incentives into systems with non-monetary goals and of introducing competitive pressures into situations where universal standards need to be maintained.

JVFM: One prof delivered one credit to a very large number of students, with Barney. Barney was/is a very popular course. A large number of students were prepared to spend their fees and their vouchers on Barney.

Declan: remember that Admissions still controls entrance requirements centrally.

Central planners used to have to resist pressures from individual departments to raise admissions requirements in their particular programs, to force the weaker students into other departments to pay the bills, while they taught only the good students. There exists some optimum level of requirements. It's not infinitely high, nor infinitely low. The aim should be to align the requirements that are good for the individual department with the requirements that are good for the university. They used to be out of alignment. If the individual department faces the same budget constraint as the university as a whole, it ought to bring them closer into alignment.

But ultimately, we will see.

Yeah, I get that. But one way to look at organizations is to classify them as cost centres, revenue centres, profit centres.

Overall, the university is a revenue centre (# of students x annual tuition)

Individual depts/courses are cost centres.

Anyway, more a semantics argument - not really important.

Admissions controls the standards to get in, I was talking about the standards to get out :)

The risk is that departments don't face the same constraint as the university because getting a student to move from English to Economics could help Economics and hurt English, but the university as a whole could either be better or worse off depending on what caused the student to change departments.

Declan; agreed. It *could* happen, if departments get too hungry for students, that they will compete against each other to lower continuation standards below what the university wants. I haven't heard of it happening yet. If it does become a problem (I don't think it will), one response would be to lower prices, to make each department a little less hungry for students. Because it would mean we have ended up overshooting our target.


Your experience in Canada seems much different from mine. For instance, you write: "Nearly all revenues come from teaching students, and are proportional to the number of students taught."

Disagree. The top source of revenue comes from the overhead assessed on research grants. Tuition dollars are valuable though because only certain kinds of costs can be paid with grant overhead: the buildings, the professor's base salary, secretarial staff.

So for instance, Caltech had a 3:1 student faculty ratio. Benefit? The faculty are required to teach only one class per term and only for two of the quarters a year. But as your math suggests 20K tuition per student is about half the average faculty salary, and we haven't even begun to pay for anything else! So in short, there is a high ratio, but professors don't teach much--normal course load is 5-6 classes/term.

So is there a lot of competition to get into classes? No. This problem is solved by not having any course size limits. What does happen is that the number of teaching assistants goes up. Even after the class has started, if enrollment continues to grow.

AFAIK, the faculty and the departments love this system, for reasons you suggest. First, money from the tuition is distributed to departments to defray the cost of teaching, and as you suggest this gets turned into food and drink :). Second, the funds for teaching assistants increase. So this subsidizes the graduate students.

Now all the professors supply RAs out of their research grants, which includes cover for tuition, but if the student TAs two classes a term, the department picks up the entire tuition portion. So less drain on the professors. The graduate students like it because its usually possible to pocket double pay, once from being an RA and once from being a TA.

The icing on the cake is that many grants allow the professors pay themselves a supplemental salary out of the grant money directly. So more students in the class -> more TAs -> more 'extra' money in the grant. More TAs -> easier to support more graduate students -> more grants. Etc.

This pattern isn't unique to Caltech. I've been an adjunct at USC, and many of the professors don't teach at all. They get waivers because their research grants are so large. Then the department turns around and hires someone like me.

Its a huge money making machine. I've taught classes of most 50-80 graduate! students. Tuition is high and unsubsidized for master's students. So that works out to be about 500K in revenue for a single class.

Jon: yes, that does sound like a very different university. My little model wouldn't work very well there.

Do I understand correctly that a prof or department that gets an increase in the number of students *automatically* gets a proportionate increase in the number of TA's and contract instructors to help teach them? So there's an incentive plan (aka resource allocation mechanism) that makes the money (aka resources) follow the students? That's what's important.

And if a university can set its own fees, then it presumably faces a downward-sloping demand curve, and so revenue per student is not fixed exogenously for that reason as well.

This was most interesting, but like Jon, my university also receives revenue from research grants plus paid grad assistants written into grants, and, not to be underestimated, the reputational benefits that accrue to the university from having faculty doing funded NIH/NSF/CDC (to name a few) research. Those of us who bring in grants necessarily have lighter teaching loads. Interestingly, at my previous university, the claim was that they lost money on research (they recovered about 65 cents in indirect costs on each direct cost dollar from federal grants) and did it only for the reputational benefits. As an economist, I found this implausible, at least in the long run. The reputational benefits must at some point translate into revenue (more students, more patients at the med school, something) to justify the costs and if they generate revenue in the long run it must (eventually) equal the "costs" associated with the research. Otherwise, why do it? Ergo they aren't (or won't be or believe they won't be) losing money on research. When I suggested this might be the case, it was always asserted that "no, we lose money on research." Weird business model.

Welcome Maxine!

If research grant pays for the teaching release, the overheads the university skims off the research grant would seem to be mostly profit for the university.

To my mind, university "reputation" shifts the demand curve of new students to the right. And the university then has a choice of whether to accept more students or raise admissions average or reduce scholarships or (not in the Canadian case) raise fees. My guess is that the people saying they lost money on research might have been saying they "spent" the reputational benefits by raising admissions standards. And they ignored the fact that this saved them money from not having to lower fees or increase scholarships to get an equivalent increase in admissions standards.

"or (not in the Canadian case) raise fees."

Sometimes there are brief windows of fee deregulation in Canada. U Waterloo took advantage of one of them to set their tuition for undergrad accounting and accounting/math combined programs at $12,000 per year, more than double the fees charged by comparable programs elsewhere (Waterloo, of course, would argue that there are no comparable programs elsewhere)

Interestingly, though the combined math/accounting programs charges the same $12,000 fees as the straight accounting program, math gets none of the extra revenue - at least this is the gossip I've heard on the street.

Maxine writes: "When I suggested this might be the case, it was always asserted that "no, we lose money on research." Weird business model."

In Biz school, there are two methods of accounting - the bean counter Generally Accepted Accounting Principles(GAAP) which has all sorts of dated rules on how fixed costs are allocated (often against labour) and Management Accounting - which would be more in line with the way economists look at things.

In a simple example - a research grant of $100k, prof salary and expenses $90k. The university is ahead $10k.

Add in allocated fixed costs (which do not change) due to GAAP accounting convention against labour (say 20% of prof salary and expenses) and the "cost" goes up $18k = $108k. The university is "losing" money on research.

Always be cautious about how overheads/fixed costs are allocated.

Btw, the situation that Jon describes is more inline with a "profit centre" - you control inputs (grant money and possibly fees charged) and indirectly costs - number of TAs/splits to Profs- so profit maximization has a different dynamic.

In a "cost centre" - like a factory - the dynamic is different - so if you're GM and you're running full out with two production lines/overtime on weekends at time and 1/2 Sats and double time Sundays - it eventually becomes cheaper to run three shifts M-F. Avg cost goes down.

Do I understand correctly that a prof or department that gets an increase in the number of students *automatically* gets a proportionate increase in the number of TA's and contract instructors to help teach them?

Yes. The number of TAs is automatic. At Caltech, they mostly do not allow contract instructors. So no to the second point. USC uses lots of outside instructors, and yes in that instance.

I found a to illustrate how tilted operations are:

(Annual) Revenue:
Tuition: 19M
Research Grants-direct: 174M
Research Grant Overhead: 100M
Auxiliary (Housing,etc): 34M
JPL Contract: 1.6B
Investment Return: 214M
Gifts: 27M

Instruction: 221M

Frances: this is how I think fees work in Ontario:

Foreign students: we can charge anything we like, and get no money from the government.

Canadian students: we can charge the official fee, and get a voucher. Or we can charge above the official fee, and get no voucher.

JVFM: Yep. I had quite a job arguing that we should not allocate fixed costs of classrooms to the Summer, when we were well below capacity.

Jon: Wow! That's all I can say.

The problem with Nick's central plannig tendencies begin when he wants the central bank to create money to prop up the value of equities.

That's central planning, unconscious of malinvestment--the sort of thinking that got us into a stupid real estate bubble.

Central planning has to be done with an explicit distributional benefit, if it is to be done at all. Reflation by itself is not a worthy objective for the central planner, and if pursued, will result in a political, as well as economic, correction.

Say, one other q about the summer program (not surprising economics and biz depts were the first two to subscribe). Did this actually result in an increase in total university enrollment, or were you just getting a larger slice of the fixed overall pie (student-credits)? If it's the latter, shouldn't one expect both winners and losers - take from Peter Dept to pay Paul Dept?

JVFM: there was an overall increase. It's difficult to say whether different departments' courses are substitutes or complements. Probably substitutes on balance. But for foreign students especially, if they know there's a good variety of courses being offered, it can make it worthwhile to stay full-time in the Summer.

With $1.6 billion revenue for the Jet Propulsion Lab (JPL) at CalTech (whose costs aren't really stated) whose research output I presume is principally used for the military (F35 anyone?), one has to wonder whether to classify it in the same category as Canadian Universities.

Just visiting:
I kept the JPL funds on an independent line because its is somewhat different than the other numbers, but no, JPL is not a military oriented organization. They do almost all of engineering and the science programs behind the robotic space missions.

Those funds don't really bleed through to paying professors, students, etc. They subsidize certain services like the library, but I think some government overseers might get upset if too much of the money spilled over into unrelated activity. What it does do is enhance the reputation and provide lots of unique opportunities for collaboration.

Jon, notwithstanding that it is for robotic space missions vs military, the relative magnitude of the revenue is what cost my eye - $1600 M JPI/ $2168 M total revenue or 73% of total.

Are you a college with a research facility attached, or a research facility with a college attached? There are synergies, no doubt, either way. Tuition seems to be a rounding error.

Off topic:

I half expect you may be posting on this, because he raises a distributional theme that you've done previously:


Although he's not entirely accurate when he says:

"Now, one person’s liability is another person’s asset, so rising debt made the world as a whole neither richer nor poorer."

That's a sub-story myth about the flow of funds that I'll refrain from commenting on.

I work for a large diversified privately-owned engineering firm, and I see many parallels with universities. Large engineering firms are also divided into many specialised departments, we also work on large complex projects that may take several years to complete, and we need to attract both new recruits, new clients, and new contracts, based on our reputation for competance (using references based on past successes).

I see 2 difficulties with analysing individual professors (or engineers) on a year-by-year basis:

1) Engineering firms (and universities) suffer from the "hardware store" problem, i.e., thay make a profit on maybe 20% of their inventory, but to draw in customers they have to maintain a very diverse inventory. Engineering firms (and Universities) benefit from the diversity of the skills of their personnel.

2) Junior engineers do not become profitable until after several years, and are most profitable in their middle years. By their waning years their productivity drops of in a strictly technical sense, but they benefit the firm in other ways by bringing in customers because of their long experience which lends credibility to service offers, and by helping out junior engineers with some of the more subtle "soft" problems requiring judgement and diplomatic skills.

JVFM: "Tuition seems to be a rounding error."

That was worth a good laugh from me!

JKH: Funny thing is, about a week or so back, PK had a post which said the private sector couldn't pay down debt unless the government added debt. And I was thinking "that's true for net debt (ignoring foreigners) but not true for gross debt, because the creditors could spend more and the debtors could spend less". Then he did the most recent post, making the same point.

"Although he's not entirely accurate when he says:

"Now, one person’s liability is another person’s asset, so rising debt made the world as a whole neither richer nor poorer."

That's a sub-story myth about the flow of funds that I'll refrain from commenting on."

I couldn't see what you were getting at here, at first. Then I realised of course you were right, because if A has real investment projects with a higher rate of return than B's investment project, B lending to A could make both B and A richer. That's one of the main things that debt is supposed to be about. That's the main reason we have a financial system.

Is that what you were thinking too?

Alex: Similar problems to your 1 and 2 crop up in universities as well, though perhaps not so severe. But that's one of the reasons we didn't try to push the incentive plan down too far, to the individual professor level.

A similar problem is this: profs can be hired, but not fired. The only quick flexibility comes from contract instructors. If student demand fluctuates too quickly, from one department or subject to another, it becomes impossible to make the resources follow the students.


Simple illustration of what I’m getting at:

Suppose a closed economy generates I = S of investment and saving. Leaving aside marked to market, that becomes a measure of accumulated wealth or “riches” over time, technically speaking.

Suppose for a given period there is no internally generated equity in the corporate sector (i.e. no undistributed profit – could still be dividends or not). That means all of S comes from somewhere else.

Assume investment I takes place entirely in the corporate sector.

The corporate sector then has to finance externally all of its investment I.

Assume it finances entirely with debt.

Then the entire wealth accumulated in that period is represented in finance form as debt (either directly held or indirectly held by the household sector.)

So it is not necessarily true that “rising debt made the world as a whole neither richer nor poorer”. And in fact, over the long haul, it hasn’t been true at all. The simple example is extreme, but the effect certainly occurs at the margins – and in a very significant way in the US flow of funds accounts. I could take you through that at some point, if you’re interested.

JKH: right. Wealth is real capital, and in your (simplified) model, all real capital is debt-financed. So the two rise and fall together. And that simple model contains a large part of the truth.

Optimising students enrolled per prof is all very well, but wouldn't you then take a hit in metrics feeding into stuff like the various World University Rankings, with consequent squealing from university bureaucrats that staff and overseas student recruitment will take a hit?

Mark: In my model, we don't *optimise* the student/prof ratio. We can't do anything about the student/prof ratio. It's exogenous (at the level of the whole university).

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