The changing rationale for public funding:
Why do we have publicly financed
universities?
Aldo Geuna
Department of economics
University of Torino
Content
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Changing roles of the university
Traditional rationale: Post-WWII approach.
Changing characteristics of university
research.
New rationale: Contractual-oriented
approach.
Advantages and Potential Unintended
Consequences: What it matter is from where
you start.
Changing roles of university
1.
To reproduce and transmit existing
knowledge (Paris).
2. To improve critical reasoning and other skills
of individuals:
(i) as input to their work (Bologna);
(ii) to develop democratic, civilised society
(Cambridge/Oxford).
3
Changing roles of university
3.
To increase knowledge base:
(i) by pursuing knowledge ‘for its own sake’;
(ii) by developing useful knowledge.
Berlin: the Humboldian university
4. To serve training and research support needs of
economy (at regional and national levels).
The entrepreneurial university (?)
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Post-WWII Rationale: The endless
frontier
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The post-1945 rationale
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Public good
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Linear process
Budgetary expansion
Academic quality increasing with funding
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Ex-ante judgement of research promises
Evaluation by academic community (peers)
Market-failure - Public good
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Nelson (1959) and Arrow (1962) laid foundations of
economics of science
Emphasised certain characteristics of scientific knowledge
as a public good:
non-rival – others can use the knowledge without detracting from
the knowledge of the producers
– non-excludable – other firms cannot be stopped from using the
information
MORE
– expansibility - The possibilities of multiple transfers make it
possible to distribute information very widely without loss.
=>
– Non-appropriable at least completely (see patents and see
discussion on Tacitness).
–
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Market-failure - Public good
=> Private benefits less than social benefits.
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Also long timescale of basic research while firms
usually have short-term investment perspective.
Social benefits also wider than private benefits
–
Firms would not have invested in research on e.g. smokingcancer link, ozone hole, global warming
=> Firms tend to under-invest in research (less than
socially optimal – free riding)
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Market-failure - Public good
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To raise research funding to socially optimum level,
government needs to invest.
Main product from govt-funded research = economically
useful information, freely available to all.
By increasing funds for basic research, govt can expand
the pool of economically useful information.
This information published – assumed to be durable and
costless to use.
Close connection between university teaching and
research means universities also produce graduates with
up-to-date knowledge and skills.
Linear model: V Bush ‘Social Contract’
- The endless frontier
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Scientific discoveries in early 20th Century & WW2
 belief in linear model of innovation.
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Basic research  App. res.  Devlpt  Innovation.
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V. Bush report “The Endless Frontier”: WWII (radar,
atomic bomb, etc…)
Government responsibility = to fund basic research
– will eventually  wealth, health & nat. security.
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Linear model: V Bush ‘Social Contract’
- The endless frontier
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Contract not very explicit re exact form of
benefits nor when.
Used to justify substantial increases in
gov’t funding.
Viewed as investment in future welfare.
Science also seen as inherently
unpredictable (‘serendipity’), ex-ante
judgment.
Scientists in best position to judge which
research best to fund (peer review).
Linear model: V Bush ‘Social Contract’
- The endless frontier
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Essential characteristics of V Bush social
contract
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high level of autonomy – few strings attached
institutionalisation of peer review to allocate funds
belief that basic research best done in universities
Main funding mechanisms 1
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Institutional core funding for universities (not
US) – general university funding (GUF)
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block grant for teaching and research
allocated on incremental or formula basis
provides funding for research infrastructure (labs,
equipments, technicians, libraries etc.) – “the well
found laboratory”
Main funding mechanisms 2
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Project funding (only in some countries)
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for specific research projects – additional costs
proposals submitted – ‘responsive mode’
judged by peer review
funding decision by committee of scientists (often
discipline-based)
What about mission-oriented
research?
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Ignores university research funded by
government departments and ‘mission-oriented’
agencies
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‘Mission-oriented research’ (cf. curiosityoriented’)
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e.g. defence, health, energy, agriculture, space
very large funding (especially in US but also UK and
F)
not just confined to technical universities
What about mission-oriented
research?
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Areas chosen reflected political priorities ‘demand-pull’ model
– US – defence, space, health
– Japan – agriculture, energy
– UK – defence, aerospace
– France – defence, nuclear energy
Changing characteristics of
university research.
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Changes in 1980s – 1990s
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Driving forces
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Economic problems (recession, inflation,1970s);
Growing costs of welfare state – health,
education, social security;
Liberal versus social-democratic views of
government (new public management; the
EURO);
Weakening of the military rational;
Globalisation and growing economic competition;
Changes in 1980s – 1990s
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Driving forces:
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Growing importance of scientific and
technological knowledge – the ‘knowledge
economy’;
The emergence of new technology driven
industries: biotech, ICT, nanotech;
‘Massification’ of HE (from 7-8% to 40-70% NS)
due to both increased demand and increased # of
students finishing secondary education;
Growing cost of research.
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Turkey
Mexico
Belgium
Germany
Switzerland
Austria
Ireland
Estonia
Chile1
Spain
Japan
Slovenia
Greece
Czech Republic
2000
Portugal
Italy1
2006
EU9 average
OECD average
Israel
United Kingdom
Netherlands
Denmark
Korea
United States
Russian Federation1
Hungary
Norway
Slovak Republic
New Zealand
Sweden
Finland
Poland
Iceland
Australia
Chart A2.3 Entry rates into tertiary-type A education (1995, 2000 and 2006)
1995
100
90
80
70
60
50
40
30
20
10
0
Changing public research systems
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Governments (first in the UK then in other
countries) introduced new/revised policies:
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To enhance quality and efficiency of public
research;
To stimulate business investment in research;
To strengthen research links/collaboration
between public and private sectors;
To increase supply of QSEs;
Changing public research systems
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To adapt to needs of service sector (increasingly
important in OECD countries);
To achieve a target level of R&D spending (e.g.
3% in EU “Barcelona target”);
To fund research in priority fields;
To stimulate public understanding/engagement.
Changing public research systems
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Reforms aiming to make the contribution of
public research systems more effectively to
innovation (were they successful?):
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Universities given increased autonomy and/or
transformed into quasi-private (NPO)
organisations (e.g. France, Italy, Japan, Denmark,
Slovak Republic);
Decreased reliance on block funding and more on
competitive project funds;
More emphasis on evaluation of HEIs and PROs
(RAE early developed in the UK/NL);
Changing public research systems
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More emphasis on mobility of students and
researchers;
Changes to IPR for universities and public
research organisations (e.g. Germany, Denmark,
Norway, Switzerland)
Encouragement to protect and exploit intellectual
property (IP)
Technology/knowledge transfer made formal ‘third
mission’ of universities (e.g. UK, Denmark,
Norway)
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Growth in patents during 1990s although slowed since
2000
New rationale: Contractual-oriented
approach
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The contractual-oriented approach 1
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Implementation:
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Competitive mechanisms for resource allocation;
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Financial quasi-market incentives to steer
university behaviour to meet societal needs and
increase efficiency. GUF declined in relative terms,
and in some cases e.g. UK, Australia (but also in
part Sweden, Denmark, Poland, Belgium) now
allocated on basis of performance see RAE;
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Policies to increase selectivity and concentration;
The contractual-oriented approach 2
–
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Project-based funding (see FIRB/ANR in
Italy/FRANCE) increased in importance with a
shift from responsive mode to directed
programmes and to research linked to needs of
‘users’ (though decrease in recent years in UK);
The contractual-oriented approach 2
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Growing emphasis on ex post evaluation;
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New government funding initiatives based on
‘challenges’ and competition e.g. Joint
Infrastructure Fund (especially UK).
The contractual-oriented approach 3
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Implicit assumptions
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Possible to evaluate quality of research output
reliably (is it? S&T indicators, ISI, citations,
metrics);
Possible to identify most promising research
avenues (is it? Student presentation on
Foresight);
Costs can be reduced without sacrificing quality
(is possible? teaching versus research);
The contractual-oriented approach 4
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Due to existence of economies of scale and
scope, concentration increases output of overall
system (do they exist? At what level? See
unintended consequences);
Admin and other costs associated with more
competitive system are small cf. benefits.
Advantages and Potential Unintended
Consequences: What matters it is from
where you start
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Advantages
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Creates incentives for performance (of a specific
type).
In some system (see Italy, France) allocation “a
pioggia” create disincentives for the most
productive.
Scientific production is Skewed:
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60% of researchers produce one paper or the
majority of papers is produced by the top
scientists.
[Lotka, A.J. (1926) The Frequency Distribution of Scientific Productivity,
Journal of the Washington Academy of Sciences, 16/12, 317-323.]
Skewness in Science
Deciles
top 10% 10-20% 20%-30% 30%-40%
rest
Share of research output
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Pareto - 80/20
61%
16%
7%
5%
11%
Lotka – 60%/1 paper
57%
12%
7%
6%
18%
Unintended consequences
of the new rationale
1. Increased concentration of resources
2. Disproportionate incentives for short-term
research
3. Conflicting incentive structures
4. Exacerbation of ‘Matthew effect’
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Increased concentration
of resources
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Resources increasingly concentrated in few
leading research universities
Implicit assumption that there are economies of
scale/scope
But no strong empirical evidence for economies
of scale/scope in university production
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Either for research itself at level of department or institution
(but ‘critical mass’ effect at level of group)
Or for joint production of teaching and research
Some scale economies for teaching and admin, and hence
perhaps indirect benefits for research
Mobility of students and researchers
Increased concentration
of resources
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Adverse consequences
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Fewer resources in lower ranked departments/ institutions
to support new ideas and new people – decreased diversity
may be detrimental to research in longer term, even if more
‘efficient’ in short term
Lower ranked institutions less able to contribute to meeting
regional needs
Temptation to undercharge, bidding for funds on marginal
rather than full-cost basis – driving down prices to detriment
of universities (become financially overstretched, staff
overworked); Evaluation of real opportunity costs.
Disproportionate incentives
for short-term research
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Evaluations tend to focus on short term
e.g. publications in last few years
Emphasis on addressing needs of users
may lead to neglect of longer-term
research
Lack of incentives for long-term, pathbreaking, ‘risky’ research
Decreased variety of research lowers
probability of scientific novelty
Conflicting incentive structures
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Different competitive funding schemes may
create conflicting incentive structures
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Weakened teaching incentives
Traditional academic incentive structure (‘open
science’) in conflict with private-oriented
incentive structure linked to business-financed
research:
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e.g. high-quality publications for RAE VS helping ‘users’
Work with industry may bring problems of secrecy, delay in
publication etc.
Risk that incentive structure of subsidiary source
of funds may dominate university research
behaviour
Exacerbation of ‘Matthew effect’
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Merton (1968) – success in research brings status and
funding – further increases chances of future success
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“To them that hath shall be given” – the ‘Matthew effect’
Evidence shows very small proportion of researchers
produce large share of most influential publications
‘New economics of science’ (e.g. David) elaborated this in
terms of path-dependence and self-reinforcing
mechanisms (e.g. ‘increasing returns’)
Growing range of uncoordinated funding sources
reinforces cumulative, self-reinforcing process
Means that researchers at lower-status universities locked
into a ‘vicious circle’ as compete for resources and status
– again lowers diversity