TY - JOUR

T1 - Funding, resource allocation, and performance in higher education systems

AU - Liefner, Ingo

N1 - Funding Information: The University of Twente views itself as an “Entrepreneurial University” that emphasizes organizational restructuring as well as active participation in industrial activities (Clark 1998, pp. 39–51). The annual budget of the university is 350 million Dutch guilders, equivalent to 180 million US dollars1 (University of Twente 1998a, pp. 10, 45). The university receives direct funding from the Dutch government through the so-called “first income stream”, which quantitatively dominates two-thirds of the budget and is partly related to performance (University of Twente 1998b, pp. 1–12). Under the current system of resource allocation, one-third of the funds of the first stream is labeled “teaching money”. These funds are calculated on the basis of entering students and graduates and some historically fixed portions. The remaining two-thirds of the first income stream is called “research money”. This part of the allocation is calculated on the basis of the number of Ph.D. dissertations, engineering certificates, recognized research schools at the universities, and again historically fixed portions. With regard to the large fixed portions in the calculation of “first income stream”, 33.5 percent of the university’s direct allocation of public funds to the university is linked to performance, 66.5 percent is fixed. Internal distribution is similar to the allocation of the first income stream from the government. Differences between external and internal resource allocation reflect the university’s aim to act more business-like than most European universities do (University of Twente 1998b, p. 32). It uses additional factors for the calculation of budgets (numbers of exams passed after the second year, employees funded through research grants and contracts, employees funded through programs of the European Union) and reduces the fixed share of allocation in favor of performance-driven shares. Half of the institution’s resources are allocated due to performance; the other half are allocated in fixed portions (see also Schutte 1998, pp. 3–5). The empirical research for this project was conducted at the Department of Economic Geography at the University of Hannover, Germany. The investigation has been funded with the help of the German Science Foundation (DFG). It was based on case studies of universities and in-depth interviews with higher education administrators and professors. The universities selected for the case studies are regarded as prestigious research universities within their national system and are internationally recognized. Because the universities chosen for this study belong to different national systems, a wide spectrum ranging from market-oriented systems to state-oriented systems will be analyzed. The investigation includes universities from the United States (Massachusetts Institute of Technology [MIT], University of Texas at Austin [UT Austin]), Switzerland (Swiss Federal Institute of Technology [ETH Zurich], University of Basel), the Netherlands (University of Twente), and Great Britain (University of Bristol). In order to avoid the problem of defining and measuring “success” with respect to research universities, institutions generally acknowledged as having an outstanding reputation were chosen. The achievements in education and research of these selected institutions are widely recognized, and they serve as role models for other higher education institutions. Analyzing the behavior of these selected universities should provide some insights about how higher education institutions can be managed successfully.

PY - 2003/12

Y1 - 2003/12

N2 - This article analyzes forms of resource allocation in university systems and their effects on performance in institutions of higher education. Internationally, higher education systems differ substantially with regard to research and education funding sources and to ways that resources are allocated. European universities receive the majority of their funding from public sources, but private funding plays a more important role in Anglo-American systems of higher education. Many governments use competitive elements in the process of allocating public funds to institutions of higher education. Examples include the implementation of performance measures through "formula funding", or resource allocation on the basis of evaluated project proposals. Corresponding forms of performance-based resource allocation can be found within most higher education institutions. This article analyzes how various forms of funding and resource allocation affect universities at the macro-level and individual behavior at the micro-level. A theoretical approach to this problem suggests that performance-based funding tends to bring about positive changes but is also a factor in unintended side effects. Forms of resource allocation influence the behavior of academics and managers in higher education, particularly their levels of activity as well as the kinds of activities they engage in and their ways of dealing with risks. Empirical analyses partly confirm these hypotheses. It can be shown that changes in resource allocation have an impact on the level and type of activity academics concentrate on but not on the long-term success of universities.

AB - This article analyzes forms of resource allocation in university systems and their effects on performance in institutions of higher education. Internationally, higher education systems differ substantially with regard to research and education funding sources and to ways that resources are allocated. European universities receive the majority of their funding from public sources, but private funding plays a more important role in Anglo-American systems of higher education. Many governments use competitive elements in the process of allocating public funds to institutions of higher education. Examples include the implementation of performance measures through "formula funding", or resource allocation on the basis of evaluated project proposals. Corresponding forms of performance-based resource allocation can be found within most higher education institutions. This article analyzes how various forms of funding and resource allocation affect universities at the macro-level and individual behavior at the micro-level. A theoretical approach to this problem suggests that performance-based funding tends to bring about positive changes but is also a factor in unintended side effects. Forms of resource allocation influence the behavior of academics and managers in higher education, particularly their levels of activity as well as the kinds of activities they engage in and their ways of dealing with risks. Empirical analyses partly confirm these hypotheses. It can be shown that changes in resource allocation have an impact on the level and type of activity academics concentrate on but not on the long-term success of universities.

KW - Funding sources of higher education institutions

KW - National higher education systems

KW - Performance of universities

KW - Research universities

KW - Resource allocation in higher education

UR - http://www.scopus.com/inward/record.url?scp=1842831984&partnerID=8YFLogxK

U2 - 10.1023/A:1027381906977

DO - 10.1023/A:1027381906977

M3 - Article

AN - SCOPUS:1842831984

VL - 46

SP - 469

EP - 489

JO - Higher education

JF - Higher education

SN - 0018-1560

IS - 4

ER -