Costs, revenues, and cross subsidies in private research-doctoral universities

The financing of universities is complex. Universities produce multiple outputs simultaneously through a joint-production process of teaching, research, and public service activities, making it difficult to separate the costs associated with each activity. The use of fund-accounting systems to track and monitor spending, revenue, and donated resources, which are generally given to universities for a specific purpose, further complicates analysis. These complexities affect pricing and resource allocation decisions, and make it difficult to align spending with institutional mission. In 1980, Bowen said that little is known about the relationship between resources and educational outcomes, and this problem still holds true today.;Revenue generated for instruction, research, and other final objectives flows to the university from multiple sources. Concern exists among many who finance higher education that revenue intended to fund instruction may be subsidizing the cost of conducting sponsored research projects. Conversely, governmental and private funding agencies have suggested that reimbursement for the indirect costs of research is subsidizing instruction and other institutional activities, which has resulted in the implementation of limits on indirect cost recovery for universities.;Institutional leaders must have accurate and meaningful data on which to base pricing and spending decisions. Of particular importance is the need to understand the relationship between the revenue generated for a particular output and the total amount an institution spends to provide that output.;This research study represents an effort to disentangle the financial data and examine the cost structures of private-research universities. Direct, indirect, and total costs; revenues; and cross-subsidies associated with the final cost objectives of these universities were examined to provide insight into the funding of university activities and to provide a basis for comparing individual institutions with the population as a whole. Factors affecting the costs of each final objective are also explored.;The intention of this researcher is not to inform what categories of revenue subsidize which costs, but rather to offer a model for analyzing the relationship between revenue and cost of various university outputs and an approach to measuring the level of cross subsidization of these activities.