Chapter 27 analyzes how economists and other social scientists have approached estimating the outputs of higher education, and – to the limited extent possible given available research – estimated how various inputs are used to produce these outputs. The chapter reviews two distinct types of approaches: (1) those that correspond to the production function analysis presented in Chapters 11 and 12 – that is, attempts to estimate the factors that affect, in the case of knowledge transfer, the value added of achievement (or earnings) and, in the case of knowledge production, affect some measure of research output; and (2) those approaches that attempt to estimate cost functions in terms of various higher education outputs – that is, total cost as a function of teaching, research, and social services. The chapter assesses a number of studies in various countries that have attempted to measure student gains in achievement and earnings across programs of study. It also reviews several US studies of retention/graduation rates and research output, as well as a case study of varying production functions across higher education programs in Morocco.

This chapter presents the importance of productivity in the growth of the cultural sector. We describe the concept of productivity lag, as explained by Baumol and Bowen, followed by a more formal algebraic analysis of the effects of productivity lag. In addition to a theoretical approach, we provide historical evidence on the productivity lag and its consequences. We also turn to a discussion of the forces that countervail productivity lag. Finally, we outline evidence that growth of the earnings gap has been forestalled by artistic innovation and an increasing artistic deficit.

Discusses both normative accounts for regulation (Why should we regulate?) and alternative accounts that attempt to explain the existence of regulation (Why do we regulate?)

This topic examines the various concepts related to the costs of a firm, and in particular relationships between costs and output, and why these relationships are important for managerial decision making. The starting point is a discussion of the types of cost that are relevant, and irrelevant, for decision making. Distinctions are drawn between explicit and implicit costs, historical and current costs, sunk and incremental costs, and private and social costs. Cost relationships with output, and various types of unit cost, are explained, and the reasons for these relationships based on production theory. Distinctions between short-run cost relationships and long-run cost relationships are explained, and factors that can cause costs to change, aided by graphical presentation. Economies and diseconomies of scale, and returns to scale, are explained in cost terms, along with economies of scope. Cost-volume-profit (CVP) analysis is discussed, and its implications for managerial decision making. There is an extensive problem-solving section with many different types of example. More complex CVP problems are presented in case studies, for example battery charging for electric vehicles.

Regulated industries increasingly look like multi-product monopolies or oligopolies, which necessitates adaptations in the design of regulation. An oligopolistic market structure will be preferred if it allows information rents to be cut and shared and if these gains offset lost scale economies. Rent cuts come from sampling effects, yardstick competition and complementarity effects. In mixed oligopolies, differences in the objectives and constraints of public and private competitors make the regulation tasks more complex and limit the possibility of implementing yardstick competition. If the costs are relatively well known (standardized technologies), a monopoly may be a better choice as there is no variance in production costs and so dual sourcing is inefficient. Otherwise, when the firms’ costs are correlated, a duopoly leads to lower marginal costs despite the need to duplicate the R&D costs. In mixed oligopolies, regulation must be adapted to the differences in the objectives and institutional constraints of private and public operators. In oligopolistic industries, self-regulation and regulation by contract offer alternatives to regulation by a specialized regulatory agency. For a multi-product monopolist, the regulatory challenge is to decide whether to set a rate of return for each product sold by the regulated firm or for its overall business.