Financial Issues Article Review - Explaining Increases in Higher Education Costs
Since the late 1970s, annual costs at four-year colleges have risen three times as fast as inflation, and, with savings rates dropping and state aid to higher education being cut, students and their families have been forced to take on ever more debt in order to receive higher education (Surowiecki, 2011). The rapid increases in higher education costs have become a considerable public concern since the early 1980s. And the discussion of how much one has to pay for higher education has also been a serious national issue when the cost of higher education for each student has grown substantially over time. In response, national commissions have been created in regard of the costs and accountability in higher education. As a result, there needs to be a clear understanding of the causes of the rapid increase in higher education costs.
Between two competing theories explaining the rise of costs in higher education which are William Baumol's cost disease theory and Howard Bowen's revenue theory of costs, the authors believe that Baumol's cost disease theory has a firmer behavioral foundation than Bowen's revenue theory. However, regardless of this advantage, the choice between them is actually rather empirical (Archibald & Feldman, 2008).
The article "Explaining Increases in Higher Education Costs" by Archibald & Feldman (2008) firstly explains William Baumol's cost disease theory and Howard Bowen's revenue theory of costs in some detail, then provides a detailed discussion of the competing explanations for rapid cost increases in higher education, and finally contains the test and the discussion of the policy consequences of the findings.
Baumol's cost disease is a phenomenon described by William J. Baumol and William G. Bowen back in the 1960s. It is based on...