Frivolous Fees and Serious Money

Over on Ramblings and Musings, University of Toronto professor Victor Ivrii is thinking about frivolous fees. His article is prompted by a National Post piece on "Sanctioned sex club events and Israeli Apartheid Week". The National Post article asks:

Why is their money going to support controversial events, such as Israeli Apartheid Week or the “Epic Sex Club Adventure” recently hosted by the student-funded Sexual Education Centre at the University of Toronto? While the possibility exists to opt-out of student funded groups, critics argue the process is not well advertised and even discouraged.

Professor Ivrii wisely takes no stand on the merits or demerits on Israeli Apartheid or Epic Sex. He argues more generally:

There should be no opt-out process, only opt-in. Unless student specifically indicates his/her willingness to pay a levy for a certain cause, this levy should not be imposed.

The opt-out versus opt-in debate has been well studied by behavioural economists, as described by, for example, Thaler and Sunstein. It's well known that people tend stick with the default option. A "paternalistic libertarian" would require people to opt in to things that are "bad" - put the cookies on the top shelf, for example - and opt out of things that are "good" - say retirement savings. So the opt-in versus opt-out debate really turns on the intrinsic worth of Epic Sex Club Adventures or Israeli Apartheid Week, and - like Professor Ivrii - I would avoid such a debate at all costs!

A more interesting question this: why should opt out (or opt in) options apply only to University of Toronto's 25 cent levies for the Sexual Education & Peer Counseling Centre, Health Initiatives in Developing Countries and BikeShare? Let's talk serious money. Why  not let students opt into supporting, say, the university library? The university president's office? The time professors spend in research? Why not let student choose which professors should receive their tuition fees - and allow students to withhold support from abysmal teachers?

The questions are purely rhetorical. There are half a dozen (o.k., three) arguments against such a scheme.

First, an opt in scheme allows students to free ride. The university president's office, for example, benefits all students on campus, by providing leadership, vision, and competent management. There is no way to prevent students who choose not to pay from from benefiting from the president's leadership. Hence each student has a temptation to avoid the costs of financing the president's office, and still enjoy the benefits. Compulsory fees prevent this.

The logic behind the free rider argument is sound as long as the benefits students receive from, say, an administrative office outweigh the costs. This begs the question: how much benefit do students actually receive from various activities on campus? 

A second argument against opt in or opt out is that students may not truly appreciate the benefits they receive from, say, academic research. A professor's research makes her a better teacher, by keeping her up to date with the latest developments in their field. Moreover, giving professors time to conduct research allows universities to attract the best and brightest faculty members. Again, the logic behind the argument is sound, but where's the evidence that students actually benefit from professorial research, or that the brightest faculty members are the best teachers?

A third argument against opt in or opt out is that many of the services universities provide have an insurance-type element, such as peer tutoring, academic success or counselling services. If students were allowed to opt in to supporting such services, only those who anticipated they were likely to need, say, peer tutoring would sign up. The financial base for these services would shrink, the demand would stay strong, hence the cost per person would rise and rise - until it reached a point that the services were no longer financially sustainable.

This is a standard adverse selection argument. The best response to it is to dispute the argument's basic premise, that something like counselling should be funded on an insurance model. Why not simply require those who use counselling services to pay for them directly? 

I don't wish for universities to be financed on an opt-in basis. What I wish for is this: that Professor Ivrii and his colleagues look each other in the eyes and ask "Are my students getting the best possible undergraduate education?" Two recent reports, by Ian Clark, David Trick and Richard van Loon and by Don Drummond have argued that Ontario universities could, and should, do much better.

It's easy to get worked up about frivilous fees. But the people who are seriously ripping off undergraduate students aren't the well-intentioned souls at OPIRG.* They're the well-placed campus rent-seekers - the budget maximizing bureacrats, and those professors who collect large salaries, and devote little or no time or effort to ensuring their students get a good quality education. 

*OPIRG = Ontario Public Interest Research Group. 

Comments

[Dyami Hayes]

There is a recent virus going around. It is causing otherwise bright people to do awful things to our language. The term "begs the question" is in risk of falling into ambiguity, like so many other once-great phrases of our language.

As for the opt-in/ out issue: it is pure rubbish. I'm glad you took the time to articulate a few arguments against it.

[Patrick]

Yup, one correct alternative phrase is "raises the question". Begging the question is a form of fallacious argument. I used to get it wrong all the time.

[Frances Woolley]

Dyami - perhaps I should have said "blegs the question"

[Senator-Elect]

Thank you for this Professor Woolley, and thank you for so many excellent posts in the past. This blog is a terrific resource!

On this issue, I want to criticize the willingness of top university officials (including, but not especially, professors) to take or demand exorbitant salaries. Public university presidents, for example, have no business making half a million dollars a year. One person is simply not worth that much money. And no one person needs that much money to live a full life. The same goes for CEOs and traders, of course. It is a society-wide problem.

But it is particularly egregious in an environment where students are racking up huge debts to pay for an increasingly devalued education. The contrast is just too much. I certainly had a sour taste in my mouth whenever I walked by my university president's Porsche. Meanwhile my tuition rose by something like 30% over four years. Yes, that's really excellent leadership there.

[Shangwen]

It's certainly easy to see the silliness of these kinds of events--universities have plenty of them. But what are they? As you point out, Frances, universities provide some things that are (internally) public goods. The facile political campaigns that go on may be pretty pseudo-intellectual, but in one sense they are just part of the array of non-academic amenities that draw some people to universities or keep them coming back. There has been a lot of commentary in the US lately about the absurdly lavish lifestyle goods offered on campuses. I agree with those who criticize students and parents for favoring this kind of thing, but going to university because you can drink your face off or protest the lack of [group name]-friendly bathrooms or food choices is pretty pathetic too.

I agree with your analysis of the payments. Students may be customers of the university, so to speak, but they aren't the only ones. Anyone who wants to benefit from the research at the institution is as much a customer as any student, in fact I think there's a strong argument that many non-students are more valuable customers than lots of students. Since students are not the best judges of what constitutes value at a university, they shouldn't be in a position to make funding decisions. So they should lump it.

I prefer the non-paternalistic option parallel to what could happen with parts of the welfare state. Let the university give those groups free space, and accept donations from people who want to support them.

[Bob Smith]

I suspect people would be less fussed by the assorted (ridiculous) opt-out student fees if the mechanism were not so blatantly designed to make it inconvenient to do so. In the internet era why should a member of the local tiny Tories group have to wander over, hat in hand, to the local OPIRG office to ask for their quarter back (which was the mechanism at UofT when I was there - I made a point of wearing my TEAM HARRIS jacket on the trip. I suspect they would have paid me much more than quarter to get me out of their office.), when they could just check a box online.

It's one thing to say, well, we want to have the opt-out mechanism because we'll raise more money (having regard to to the assorted behavioural economics theories Frances discusses) than if we used the opt-in mechanism. Its another thing all together to say, well, we'll raise more money if we have an opt-out mechanism AND make people jump through hoops like circus clowns if they want to exercise it. The latter approach is pointedly abusive.

Mind you, the proper response to this would be for the UofT (or whatever) tiny Tories/Friends of Israel/Pro-life (pick your conservative-friendly organization) group to mobilize their supporters to get opt-out fees for themselves (as people have rightly noted, student election turnouts are so low, anyone who really tries can probably win a referendum issue). I suspect the Israeli "Apartheid" or OPIRG people we be far less sanguine about the merits of opt-out fees if they had to wonder into the local Hillel/tiny Tory/pro-life headquarters to get their money back.

[Wendy Stewart]

As a former CFO of a Students' Association and a member of the Campus Conservative Club at while I was on council, I can speak to how these funding mechanisms work. Aside from a few specific dedicated ancillary fees that are paid per student to a specific organization, such as OPRIG, most of the other groups, like these new Israeli Apartheid clubs, are just that. Student clubs funded by the Student Association and not a direct fee per student amount. This is where a lot of the frustration comes in and the in-fighting happens. Student Council decides which clubs receive funding from the lump sum each student pays towards the Student Association or Student Union. I was always amazed by how upset students would get by how much money would go towards each group yet, voter turnout would average 10 - 15%. This is where students should concentrate their efforts if they want real change in where their student fees go.

[Frances Woolley]

Wendy - "voter turnout would average 10 - 15%."

You're absolutely correct on the difference between clubs and organizations funded through opt-out fees.

A couple of thoughts. Funding of student clubs is an interesting example of political log-rolling - A votes to fund B's club so that B votes to fund A's club.

A lot of the clubs on campus are silly but, at the same time, they're a big part of the undergrad experience. And some do great things. E.g. last week I was at U of O giving a talk on Economics of Sex - completely student organized, and funded by the undergraduate Economics Student Society through the usual student fee mechanism. Terrific turn-out, and people asked some questions that suggested they really understood and thought about the issues.

Bob "I suspect people would be less fussed by the assorted (ridiculous) opt-out student fees if the mechanism were not so blatantly designed to make it inconvenient to do so."

The other thing is that opt-out fees never die - the PIRGs are now 30 or 40 years old. I guess to some extent fees do de-flate away. But since old ones don't die and new ones come on-line the list of such fees is getting longer and longer.

Shangwen: "Since students are not the best judges of what constitutes value at a university, they shouldn't be in a position to make funding decisions. So they should lump it."

Fair enough, but if not student choice, what mechanisms do we put in place to ensure that universities deliver great quality undergrad education?

[Wonks Anonymous]

Are there any real examples of adverse selection?
http://marginalrevolution.com/marginalrevolution/2005/12/adverse_selecti.html

[Ralph Musgrave]

What’s wrong with Apartheid? Tibetans want to preserve their culture, traditions and way of life? Something wrong with that?

Keynes said "...we should encourage small political and cultural units. It would be a fine thing to have thirty or fourty capital cities in Europe, each the center of a self-governing country entirely free from national minorities (who would be dealt with my migrations where necessary).”

If anyone was to repeat Keynes’s sentiments nowadays they’d be imprisoned for being politically incorrect (i.e. speaking the truth).

I got the Keynes quote from "Where Keynes Went Wrong" by Hunter Lewis, p.316. He got it from "John Maynard Keynes" by Robert Skidelsky (vol3) p.218.

[Determinant]

Shangwen: "Since students are not the best judges of what constitutes value at a university, they shouldn't be in a position to make funding decisions. So they should lump it."

Fair enough, but if not student choice, what mechanisms do we put in place to ensure that universities deliver great quality undergrad education?

Students are not the best judges of the value of the good they consume? Er, when did this thread turn into macro?

[Bob Smith]

I think Shangwen is making a broader point. Students may be the best judge of value of what they consume, but universities produce more than teaching, and I think his point is that they aren't the best judges of value of that other outpit(because, really, how many undergrads actually care that their professor is one of the world's leading experts on, say, French fascism?) nor may they appreciate how those other outputs contribute to the undergrad experience.

Its too early in the morning for this, but I think the tricky part is that we have universities that produce two outputs (teaching and research) which benefit different groups (students and society at large, well, maybe), where the quality (and therefore value to the consumers) of those outputs may be correlated with one another (i.e., there are positive, I hope, externalities. If consumers of those outputs consume them in isolation from one another, their consumption will be suboptimal (since they don't take into account the externalities). I'm not sure that our current funding arrangements neccesarily resolves that, but I can see how a strict "fee-for-service" approach wouldn't work.

)

[Frances Woolley]

Bob "I can see how a strict "fee-for-service" approach wouldn't work."

I agree with you it wouldn't work. I just get irritated by people worrying about a few dollars for OPIRG when there are so many far more serious ways that undergraduates are taken advantage of. Interestingly enough, Carleton has a right-leaning student council right now which is providing funding for sororities and fraternities, and pressing for a referendum on OPIRG to see whether or not there is still support for the levy. Also, at Carleton the Israeli Apartheid Week is funded through OPIRG rather than out of general student fees, as Wendy described in the comment above.

[Wonks Anonymous]

Also, I would expect a focus on research to distract professors from teaching, not that education is about learning anyways.

[Bob Smith]

"Also, I would expect a focus on research to distract professors from teaching, not that education is about learning anyways."

I'd expect that the externalities could go both ways.

"I just get irritated by people worrying about a few dollars for OPIRG when there are so many far more serious ways that undergraduates are taken advantage of."

I think the difference is that people accept that when they go to university, they're buying the "whole package" of teaching and research, but they don't accept that partisan activism is part of that package. It's a forced analogy, but the combination of options available when you buy a car are unlikely to be just "right" for you, but people accept the "whole package". I suspect if GM started including a "Vote Obama/Romney" bumper stickers as a mandatory feature of their cars (but, hey, you can remove it), consumers would go ape.

In any event, I'm not sure that students are being taken advantage of, since it's not as if they're paying the full cost of the university experience (government funding, alumni support, donations, etc. making up the balance). If they were paying the full freight, they might have a grievance, but...