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“…the interpersonal processes that a student goes through…”
Harvard students (2008) by E>mar via flickr. Used by permission (CC by-nc-nd)

Is the pot calling the kettle black? Oh sure, journal prices are going up, but so is tuition. How can universities complain about journal price hyperinflation if tuition is hyperinflating too? Why can’t universities use that income stream to pay for the rising journal costs?

There are several problems with this argument, above and beyond the obvious one that two wrongs don’t make a right.

First, tuition fees aren’t the bulk of a university’s revenue stream. So even if it were true that tuition is hyperinflating at the pace of journal prices, that wouldn’t mean that university revenues were keeping pace with journal prices.

Second, a journal is a monopolistic good. If its price hyperinflates, buyers can’t go elsewhere for a substitute; it’s pay or do without. But a college education can be arranged for at thousands of institutions. Students and their families can and do shop around for the best bang for the buck. (Just do a search for “best college values” for the evidence.) In economists’ parlance, colleges are economic substitutes. So even if it were true that tuition at a given college is hyperinflating at the pace of journal prices, individual students can adjust accordingly. As the College Board says in their report on “Trends in College Pricing 2011”:

Neither changes in average published prices nor changes in average net prices necessarily describe the circumstances facing individual students. There is considerable variation in prices across sectors and across states and regions as well as among institutions within these categories. College students in the United States have a wide variety of educational institutions from which to choose, and these come with many different price tags.

Third, a journal article is a pure information good. What you buy is the content. Pure information goods include things like novels and music CDs. They tend to have high fixed costs and low marginal costs, leading to large economies of scale. But a college education is not a pure information good. Sure, you are paying in part to acquire some particular knowledge, say, by listening to a lecture. But far more important are the interpersonal processes that a student participates in: interacting with faculty, other instructional staff, librarians, other students, in their dormitories, labs, libraries, and classrooms, and so forth. It is through the person-to-person hands-on interactions that a college education develops knowledge, skills, and character.

This aspect of college education has high marginal costs. One would not expect it to exhibit the economies of scale of a pure information good. So even if it were true that tuition is hyperinflating at the pace of journal prices, that would not take the journals off the hook; they should be able to operate with much higher economies of scale than a college by virtue of the type of good they are.[1]

Which makes it all the more surprising that the claims about college tuition hyperinflating at the rate of journals are, as it turns out, just plain false.

Let’s look at what the average Harvard College student pays for his or her education. Read the rest of this entry »