William Baumol And William Bowen's View Of The Revenue Theory Of Cost
explanatory Essay
706 words
Anyone can see that over the past number of years, college tuition and overall costs to attend a university have skyrocketed and is at an all-time high. Although, most people are not too sure why this has happened. According to authors Robert B. Archibald and David H. Feldman in the article, “Explaining Increases in Higher Education Costs,” there are two opposing arguments as to why this has occurred over the years. These include the Cost Disease argument, which was William Baumol and William Bowen’s view of the rising cost of education and the other was the Revenue Theory of Costs, which was Howard Bowen’s view of the topic. There are multiple goals throughout this article. A couple of the goals include explaining the two competing arguments …show more content…
In this essay, the author
- Explains that college tuition and overall costs to attend a university have skyrocketed and is at an all-time high. there are two opposing arguments as to why this has occurred over the years.
- Explains the cost disease approach, which is based on comparisons between higher education and other industries.
- Explains that the revenue theory of cost is based on the revenue available for education that can be raised for each student attending college.
Unlike Cost Disease, the cost when regarding Revenue Theory of Cost is not focused technological progressions or the standard of living. It is, however, focused on the revenue available for education that can be raised for each student attending college. Technology and the standard of living only influence the cost per student only if they influence those who control revenues and enrollments. This is called the Revenue Theory of Cost because universities see the quality and cost relationship as a limitation, and they try to get past this limitation and get more revenue for the students to get to the path to higher quality. It is known that universities spend all the money they are given. There are public restraints, such as health care or K-12 education, which keeps universities from wasteful overspending. Bowen explains that he expects colleges and universities to do everything they can to get past the constraint that revenue has on costs. Quality comes into play such that some think raising prices might decrease the amount of high quality students and would harm the overall quality of the college or university. Bowen states that “an institution can maximize quality or it can maximize revenue. It cannot do both.” Although maximization in quality usually trumps the maximization of revenue in terms of the cost of tuition. It is also said that the only way to control the institutions is to control their revenue (Archibald and
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