Endowment Management Based on a Positive Model of the University

See on Scoop.itDual impact of research; towards the impactelligent university

Abstract

I propose a positive model of the university that generates many apparently peculiar features of universities such as endowments and tuition subsidies. The model proposes a specific objective function: a university maximizes its contribution to the intellectual capital of society, valued at social returns. The objective function is enforced within the model–that is, it leads to actions that reinforce the initial selection of the objective function. Endowments also arise naturally within the model: they are a necessary feature of certain universities, not an accident. The model has important implications for the decisions that universities should make on many fronts, but I focus on the implications for financial decisions, especially universities’ endowment spending rules and portfolio allocations. The model is designed to explain America’s great private research universities and very selective liberal arts colleges and–with modest adaptations–institutions like America’s and Britain’s great public research universities. Indeed, a ancillary benefit of the model is that it provides a justification for existence of the aforementioned institutions by assigning them a unique role in the creation of the world’s intellectual capital.

 

The description of the model by the author:

“Each university maximizes its contribution to society’s intellectual capital by making two types of investments:
(i) investments in advanced human capital embodied in people and (ii) investments in new knowledge embodied in research. These investments have peculiar properties that make them unlikely to be financed by conventional means. In making these investments, universities play a role that closely parallels that of a venture capitalist. They invest not only money, but also expertise and infrastructure. The university gets what is essentially an equity stake in its intellectual capital investments. Collecting these (equity-type) returns is a key difficulty for universities, and it is in overcoming this difficulty that universities (i) generate an endowment, not merely gifts and grants for current use and (ii) reinforce the initial choice of their objective
function so that the model is, as a logical matter, closed”

 

Source:

NBER WORKING PAPER SERIES
ENDOWMENT MANAGEMENT BASED ON A POSITIVE MODEL OF THE UNIVERSITY
Caroline M. Hoxby
Working Paper 18626
http://www.nber.org/papers/w18626
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fulltext: http://m.nber.org/papers/w18626.pdf

 

See on m.nber.org

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About Wilfred Mijnhardt
RMIMR is my virtual playground, a place to reflect on issues from my professional context, my job as Policy Director at Rotterdam School of Management, Erasmus University (RSM). RSM is the international university based business school at Erasmus University Rotterdam. More info here: www.rsm.nl Here is my list of relevant publications on the topic of my RMIMR weblog: http://www.mendeley.com/collections/694621/RMIMR-Repository/ The rss feed for my RMIMR collection is here: http://www.mendeley.com/collections/rss/694621/ Here is my other weblog on impact of research: http://www.scoop.it/t/dualimpact

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