University of Virginia Library

An Economist's Outlook On Expansion

By RICHARD SELDEN

— Ed.)

I hope you will forgive me if
I behave like an economist.
However, it should be obvious
that the problem under
investigation by the Committee
on the Future of the University
is an economic problem—a
problem of how best to
allocate scarce resources among
alternative uses. It does
involve, of course, political
problems, engineering
problems, educational
problems, etc. as well. But
what I wish to stress in these
brief comments are the
economic implications of
expansion of the University.

Let us begin by considering
the demand for higher
education over the next decade
or two. Two points should be
made. First, it is clear that
simple projection of past
growth trends in applications
for admission (or actual
enrollments) does not offer a
valid means of forecasting
future demand. This is
painfully evident at the
graduate level, where really
major shifts are taking place as
prospective graduate students
reassess employment and
income prospects in the various
professions.

Dr. Allen Cartter,
Chancellor of New York
University, presented an
analysis of the supply-demand
situation facing Ph.D.s in the
sciences earlier this year. I will
not try to convey his specific
findings here. In general,
however, he concluded that we
are likely to be glutted with
scientists over the remainder of
this century. Perhaps Cartter is
unduly pessimistic, yet where
are the analyses that refute
him? Until such analyses are
produced it would appear to
me to be wise to look at
graduate enrollment
projections with a certain
amount of skepticism.

Even at the undergraduate
level I think there are some
questions. The emerging
demographic trends indicate
that the pool of high school
graduates will peak in 1974
and will decline thereafter
through the 1970s and into the
1980s. This raises a question
whether there will in fact be
continually rising pressures on
the part of young people,
inside and outside Virginia, to
be admitted to the University.
Moreover, the rapid

development of our
community college system may
be a further factor relieving
pressures on admission at the
state's full-fledged universities.

The second point I would
like to make about demand for
higher education is that we
cannot speak validly about
demand without considering
price. Clearly, if the cost to
prospective students were
reduced to zero there would be
a very substantial excess
demand for places in the
University. My own judgement
is that a sizable part of the
pressure on admissions can be
traced to the low price we
charge for our product.

I am certain that this is a
relevant point with respect to
graduate admission, and I
suspect that it is also relevant
to undergraduate admissions. It
would seem to me that the
Committee must definitely
address itself to the question of
tuition levels in its study of
demand for admission.

Let us turn now to the cost
of providing higher education.
For even if it can be
demonstrated that the demand
for higher education in Virginia
will grow substantially in the
next decade or two, it would
not follow that the size of the
University in Charlottesville
should grow. There is probably
some U- shaped average cost
curve in the higher education
industry, as in other industries:
very small universities probably
can produce high quality
education only at a high cost
per student, while somewhat
larger universities can do so at
significantly lower cost per
student. But I think it is
abundantly clear that
eventually, as size is increased,
some minimum average cost is
reached. If a university
continues to grow beyond
minimum-cost size, it will incur
rising cost per student.

Now I want to make it
entirely clear that I am not an
expert on the economics of
education. I have not estimated
these long-run cost functions,
and I do not know for certain
how large a university must be
to attain the lowest-cost
position. I believe, however,
that the Committee on the
Future cannot avoid addressing
itself to this question. If it fails
to do so it will leave
unanswered the argument of
many members of this
community that growth of
higher education in Virginia
should take place in the state,
especially in Northern Virginia.

My own judgement is that
events of the past few years
strongly suggest that
universities of more than about
our present size do encounter
rapidly rising costs. These costs
are not easy to measure since
they may take the form of
quality reduction rather than
higher explicit pecuniary costs.
But even the pecuniary costs
are likely to rise as
administrative problems
proliferate with size.
Specifically with reference to
the University of Virginia, we
can see certain large costs
looming in the future if growth
proceeds much further.

For example, our faculty
club facilities are already
seriously strained and are the
poorest of any that I have
encountered in my travels
through academia. The parking