The Angry Professor wonders whether having academic departments compete for the university budget leads to a "race to the bottom":

Several years ago LSU moved to a business model budget. Under this model, each department has control over its own funds. We might choose, for example, to give everyone a big raise. Or, we might choose to hire new faculty. We might purchase equipment, or furniture.

As with all such schemes, the administration makes sure that they will get money from somewhere to sustain their bloated salaries. Each department pays a "tax" to the college, which is determined by enrollments and indirects as earned in "Year Zero" (the year before the new budget took effect). If the department fails to generate at least the enrollments and indirects earned in this year, the college will take the shortfall out of the departmental budget. We're not talking about that funny fake money that colleges usually shuffle around, but real dollars: my raises.

This has wreaked havoc on interdepartmental research, and apparently caused a proliferation of statistics courses. So who wins?

Only two groups of people seem to be benefitting from this model: the deans and the marginal-at-best departments. The dean no longer has to make the hard decisions about which programs to support and which to cut. S/he no longer has to deliver bad news, but only sits back and watches the marketplace in action. The marginal departments, the ones with the lowest possible academic standards, are pulling in vast numbers of warm bodies and the tuition dollars associated with them. The departments that formerly only provided degrees to the football players are now thriving.

But is it real competition, when your budget doesn't necessarily grow with learning but just with 'fannies in the seats'? Alex Tabarrok suggests a better grading system that would lead students to feel rewards for taking and succeeding in more difficult classes. But even that assumes the university in this situation could somehow wear the Rawlsian veil of ignorance and choose a set of grading rules without looking to see if your own ox is gored.

It would seem that if you wanted to use a competitive model the administration would be interested in learning what the students have actually learned. Thus the Commission on the Future of Higher Education's call for the Adult Literacy Survey to be used on college students might help provide better-informed competition. If students in your major score less on this survey, perhaps, your tax goes up.

But my general opinion is the first benefit that the Angry Professor lists is the correct one: Deans like these formula-driven budgets because they allow the deans to avoid having to make hard decisions. Every formula has holes and blind spots. Choosing to rigidly follow the formula is a decision, and saying "sorry, that's what the spreadsheet says" is excuse-making, not decision-making.