Growing the Pie? The Effect of Responsibility Center Management on Tuition Revenue

ABSTRACT

Responsibility center management (RCM) budgeting systems devolve budget responsibility while creating funding formulas that provide incentives for academic units to generate revenues and decrease costs. A growing number of public universities have adopted RCM. The desire to grow tuition revenue has often been cited as a rationale for adoption. Previous research has not assessed the effect of RCM on institution-level tuition revenue. Traditional regression methods that calculate “average treatment effects” are inappropriate because RCM policies differ across universities. This study employed a synthetic control method (SCM) approach. The SCM approximates the counterfactual for an RCM adopter by creating a synthetic control institution composed of a weighted average of nonadopters. The SCM estimates the effect of RCM separately for each adopter rather than estimating the average effect across multiple adopters. We used SCM to analyze the effect of RCM adoption on tuition revenue at 4 public research universities that adopted RCM during 2008 to 2010. We found a positive relationship between RCM and tuition revenue at Iowa State University, Kent State University, and the University of Cincinnati. The magnitude of this relationship was moderately large relative to placebo adopters. We found no relationship between RCM and tuition revenue at the University of Florida.

KEYWORDS:

• Budgeting
• decentralization
• finance
• institutional policy
• new public management
• performance funding
• public universities

Notes

1. The University of Delaware adopted RCM in 2009–2010 but was excluded from analyses because it utilized different accounting standards than most public universities for calculating the dependent variable.

2. Abadie et al. (2010) used a pretreatment period of 1970 to 1988. Abadie et al. (2015) used a pretreatment period of 1960 to 1990. These analyses measured time in years. By contrast, Fremeth et al. (2016)measured time in months and utilized a 48-month pretreatment period.

3. The ratio of posttreatment to pretreatment RMSPE is multiplied by −1 if the sum of the treatment effects across all posttreatment years is less than 0.