The Economics of Liberal Arts Education

For the past couple of decades, college tuition prices have risen consistently and substantially. Leading this trend are the national liberal arts colleges, which tend to depend largely on their students? tuition payments due to relatively modest endowments and gifts and extremely limited state subsidies and funding. There has thus been significant controversy over whether an improvement in quality of these elite private colleges has accompanied the rising prices. Never before has the concern about the productivity, which is measured by the ratio between output and expenses, of the U.S. higher education attracted so much attention. The purpose of my summer project is to apply economic analysis to model and estimate the relationship between tuition prices and service levels for the 214 U.S. national private liberal arts colleges rated by U.S. News and World Reports . I investigate into whether the liberal arts education sends helpful signals in which higher prices match higher quality. The project collects 2004 data from the website of the federal government?s Integrated Postsecondary Education Data System (IPEDS) on tuition prices and various aspects of colleges that reflect quality of services provided for the 214 national liberal arts colleges rated by U.S. News . This summer, apart from reading literature on the topic, I also collected the data on institutional characteristics (tuition, dorm capacity, dorm capacity per student, room and board charges, and other types of fees), enrollment (grand total, and totals of different ethnicities), salary of faculty and staff (of different tenures and contracts), benefits (retirement, life insurance, social security, health,?), faculty and staff totals, finance (investment plan and returns, assets, liabilities, appropriations, grants and contracts, sales and services of educational activities and auxiliary enterprises, hospital revenues; expenses on instruction, research, public service, academic support, student service, financial aid and scholarship, operation and maintenance, and depreciation), and student financial aid. The data set is then ready for econometric regressions to estimate the relationship between the price and quality of liberal arts colleges. The outcome of this project will not only make important contributions to the recent research efforts on the economics of the U.S. higher education but also bear crucial implications for educational policies. In addition, the possible ranking of liberal arts colleges which could come out of this project might provide an alternative or at least an economics-based check on the sort of ranking methodology used in the popular press, such as the US News and World Reports ranking