Thursday, February 11, 2010
...there are two costs that seem especially relevant: (1) The costs of getting big donations are more than just seats on a plane to the Rose Bowl. Tremendous amounts of time, energy, and resources go into "asks," and these costs should be factored into the whole calculation about whether a firm/university is "making it." (2) Universities like UW-Madison receive a tremendous amount of support from taxpayers. Thanks to taxpayer subsidies, prices for tuition are kept artificially low. Furthermore, many student scholarships are funded by tax dollars. (Here, in Georgia, for example, lottery revenues cover tuition costs for all students with a B or better average in high school.) Again, these are just two of the relevant costs that must now be considered once we take the "look at the overall picture" approach.This is no doubt true, but one would want to think then about the rate of substitution between the salary of another fundraiser in the alumni office and the recruiting costs of a star quarterback. Given that the athlete is barred from receiving a wage, it may be that the relative prices of athletes and fundraisers tilts towards a better athletic program and fewer glad-handers.
There are also questions to be raised about whether your basketball team getting to the Final Four of the big dance gets you more applications for admissions, from people with parents with deep pockets perhaps. It's advertising for your school, which is much cheaper in basketball than football due to team size (and why so many schools want D-I basketball programs.) Prof. Beaulier is right, you can add more costs on if you want ... and more revenues. This is why economists like that ceteris paribus assumption.
So maybe we take Prof. Beaulier's Austrian advice and say "we just don't know," which is true if you insist on moral certitude as your standard of knowing. Or we could think marginally, arguing that for the last person you put on the plane to the Rose Bowl, the price of the ticket was lowered to induce an additional contribution to the alumni fund, given the fixed costs of the alumni office's payroll. I wouldn't call that a moral certitude, but I can predict a great deal of human behavior thinking marginally.