One story you hear about college tuition, one I’ve often told myself, is that rates go up because it’s a Baumol’s Cost Disease situation. The faculty are highly skilled workers. And technological improvements in the broader economy drive up the productivity and wages of skilled workers. But the actual productivity of college professors is not encountering any technology-driven enhancements in productivity — you’ve still got men and women standing in lecture halls or sitting around seminar tables talking to people. So costs rise.
In a very interesting Washington Monthly article, Kevin Carey argues this isn’t really true and cites a whole host of technological innovations that colleges have put to use lowering the price of undergraduate education. But rather than those improvements being passed along to students in the form of lower tuition, they’ve just made undergraduate education more profitable at the institutions in question. The resulting situation is no good for society at large. More productive educational models, and more affordable education, would be a big plus. But it doesn’t happen because, for the reasons Carey outlines, the higher education marketplace is pretty dysfunctional — students and parents have almost no accurate information about the quality of the product being offered, and in some respects a high price or lavish spending on things that aren’t educationally useful, can be used to signal quality. And it’s extremely difficult for an institution to demonstrate that it’s offering a relatively cheap, but still high-quality, educational offering.