Wednesday, December 13, 2006

Veblen Effect Tuition

Most people want to pay the lowest price that will deliver the goods. Sometimes, though, you want to be sure you get the very best quality goods. There are a dozens of ways to measure quality. One of the easiest, though most treacherous, is price. For some goods, more people will flock to it if it costs more, even if it costs much more than competitors. This is called the Veblen Effect, after Theory of the Leisure Class author Thorstein Veblen.

College education is worth paying more to get the best. And the best education does cost more than the more mediocre kinds. Some colleges cost more because they spend more to educate.

Some colleges, though, charge more just so other people will think that they are as good as the most expensive. They may even be that good, but don't, for strict cost reasons, actually need to charge that much. Still, the market is a harsh mistress. The New York Times reports today that Ursinus College, for example, raised its prices to keep up with the competition – and as a result, applications went up considerably.

I am happy to report that Centre College still offers "a New England education at Southern prices."


Anonymous said...

When I saw the title of your post, I thought we might be about to hear the conspicuous consumption edge of Veblen, also relevant.

My small college just voted to start a football team, whose avowed purpose is to bring more men to campus. This turns out to be something many small colleges are doing. The cost is quite high. It is delaying the start of a new wing for the science building - needed to serve nursing and health professions, the cash cow of our institutions.

Your post makes me think we might get some secondary gain from the tuition hike that's needed to pay for our decision to dress up our campus in football spirit so that we match the consumption of the colleges next door.

Gruntled said...

Perhaps it would be cheaper for your school to attract men with a "come to college; meet nurses" campaign :-) .

Anonymous said...

As a parent who yesterday sent in the last of 18 straight tuition payments over the last 5 years (3 children who graduated in 2005,2006 and 2007), I have little patience with the thinking at Ursinus (and the people who responded to their decision!) As a solidly middle class family who values liberal arts education, my husband and I now find ourselves five years from retirement with very heavy debts from participating in the costs of two private, liberal arts colleges (Centre being one of them) and one large public university. And this was with outstanding financial aid at the two private colleges and each child taking on their own debt with student loans. However, only our child with the public university education has graduated with a degree which enables her to be employed and pay off her student loans and we paid less than half of what we paid for the private colleges. If I had to do it all over again, I'm not sure I wouldn't encourage my children to spend two years at a community college and transfer to a state school. The value of the education that one receives has got to include some measure of the debts that one incurs to receive it and although I don't think education should be free, the costs to receive it cannot continue to rise at such a high rate. I really do believe a college education will soon be the prerogative of only the upper class. Certainly a private liberal arts education will be the prerogative of the upper class. I doubt if my grandchildren will have the opportunities that my own children had and my wish would be that those considering the move to raise tuition because of how they might be perceived would be roundly dismissed. (There was considerable dissent among alums and current students at the decision of the University of Richmond to try to attract 'better' students by raising tuition. I do not know what the outcome of that has been in terms of their applications, but it was not a popular decision in the state of Virginia!)

ceemac said...

There was an article about this circa 1990 in (I think) the Chronicle of Higher Ed.

Operating from memory:

The focus was a college that did not raise it's tuition for a year or 2 in the 80's while it's competition did raise theirs. Contray to what one might expect he "less expensive" school found that the number of applicants went down not up. So they raised their tution to a par with competitors and applications increased.

I am reminded of the Cosby episode where Theo wanted his parents to give him the money that they would spend on a college education. He based his calculations on tuition at the most expensive school in the country (Bennington at that time) because he knew his parents only wanted "the best" for him. Cosby told him first he needed to get admitted to Bennington and then they could talk.

Gruntled said...

The irony is that the universities with multi-billion dollar endowments don't really need to charge tuition at all -- their pricing is to reassure people that they are worth sacrificing for.