A Global Perspective on Private Higher Education

Mahsood Shah, Chenicheri Sid Nair

• Publisher: Chandos Publishing
• Year: 2016
• ISBN:
  9780081008980
• Topic: Education
• Subtopic: Higher Education

AGlobal Perspective on Private Higher Education provides a timely review of the significant growth of private higher education in many parts of the world during the last decade. The book is concurrent with significant changes in the external operating environment of private higher education, including government policy and its impact on the ongoing growth of the sector. The title brings together the trends relating to the growth and the decline of private higher education providers, also including the key contributing factors of the changes from 17 countries.

• Provides a timely review of the significant growth of private higher education in many parts of the world during the last decade
• Presents the significant changes in the external operating environment of private higher education
• Brings together the trends relating to the growth and the decline of private higher education providers

1

The issue of contractible quality, quality assurance, and information asymmetries in higher education

M. Xiaoying¹, and M. Abbott^{2 1}North China Electric Power University, Shanghai, China ²Swinburne University of Technology, Melbourne, VIC, Australia

Abstract

One international trend in the provision of higher education has been the growing tendency for governments to promote greater levels of institutional autonomy while also requiring greater formal accountability measures of educational providers to regulators. This has usually involved the creation of formal regulations that aim to implement quality assurance measures, set levels of internal efficiency, implement quality, and provide for better financial accountability. The structure and intensity of government regulation, including quality assurance regimes, depends on a country’s mix of public and private higher education providers. This has meant that in recent years, there has been a proliferation of regulatory regimes around the world designed to affect the behavior of higher education providers. In this chapter, the nature of higher education market regulation is analyzed by identifying the economic rationale for the regulation of markets, more generally in terms noncontractible quality and information imperfections, and an attempt is made to match this intervention with the various types of regulation imposed.

Keywords

Information asymmetry; Private and public ownership; Regulation; Systematic instability

1.1. Introduction

In recent years, there has been some concern expressed that access to higher education should be expanded and student academic outcomes be enhanced. As part of this process, one international trend in the provision of higher education has been the growing tendency for governments to promote greater levels of institutional autonomy, while also requiring greater formal accountability measures of educational providers to regulators. This has usually involved the creation of formal regulations that aim to implement quality assurance measures, set levels of internal efficiency, implement quality, and provide for better financial accountability. This has applied not only to government owned higher education providers, but also privately owned ones.

The structure and intensity of government regulation, including quality assurance regimes, depends on a country’s mix of public and private higher education providers. In practice, it is possible for governments to promote higher education by funding expansion of either the public or private sectors. This mixture varies greatly across countries (see Table 1.1 and Fig. 1.1). In economics, government owned education providers are generally preferred over private ones in delivering goods and services where it can be shown that there is some form of noncontractible quality that private sector providers cannot replicate, and governments cannot compel them to create that quality through contracts or regulation (Shleifer, 1998). In the case of higher education provision, the manner in which this quality is contracted/regulated through the enforcement of a quality assurance framework in an issue that is growing in importance.

This has meant that in recent years, there has been a proliferation of regulatory regimes around the world designed to affect the behavior of higher education providers. The purpose of this chapter, therefore, is to reflect on the nature of higher education market regulation by identifying the economic rationale for the regulation of markets, more generally in the terms noncontractible quality and information imperfections, and to attempt to match this intervention with the various types of regulation imposed. Given the lack of work that has been conducted in the area, it seems unlikely that the regulation of higher education markets is exactly what would be expected of analysts and critics of government regulation and market failure. The regulatory dilemmas provide a good example of some of the problems faced by governments when they attempt to create a quality assurance framework for the higher education sector.

Table 1.1

Proportion of higher education in the private sector (%)

	%	Year
Argentina	23.9	2005
Brazil	74.6	2007
Chile	77.6	2007
China	19.9	2008
Germany	4.9	2009
India	30.7	2005
Indonesia	71.0	2007
Japan	77.4	2007
Malaysia	50.9	2009
Mexico	33.4	2006
Philippines	65.2	2006
Russia	14.9	2004
South Korea	80.1	2006
Thailand	9.9	2007
United States	26.1	2006

Source: PROPHE.

Figure 1.1 Private funding of tertiary education as a percentage of total funding, 2012. Source: OECD.

1.2. Noncontractible quality and information imperfections

Education, through the creation of human capital, is considered to be an important part of economic development (Maglen, 1990, 1995; OECD, 2002, 2014). In the past, most governments have not only invested in physical capital by spending on the construction of such things as roads, rail, bridges, ports, and airports, but they have also invested in the education of human resources (Chapman & Pope, 1992). This notion that education can enhance the productivity of labor is not a new one, with Adam Smith as far back as 1776 explaining “that a man educated at much expense and time to tasks that require dexterity and skill and may be compared to an expensive machine that adds more to earnings than the cost of operating it” (Smith, 1776). This notion that investment in education can raise the productivity of the workforce and generate returns to investors has been embodied in the form of human capital theory, which states that investment in human resources is similar to that in physical capital, in that a person incurs costs in investing in education in the expectation that future returns will be made (Becker, 1964; Mincer, 1958; Schultz, 1961).

A wide variety of studies have been undertaken on the link between investment in human capital and growth rates. The Organisation for Economic Cooperation and Development (OECD), in research on the relationship between growth in per capita output and inputs (including expenditure on education), found a significant relationship between growth and investment in human capital (OECD, 2002, 2014). Even if it can be shown that investment in education leads to an increase in economic growth, however, this does not necessarily validate government intervention on economic grounds. To justify government assistance, there needs to be a demonstrable market failure that leads to suboptimal levels of investment in human capital. This then brings us to the question of whether there are market failures in education markets (Quiggin, 1999).

Generally, economists evaluate whether governments should intervene in markets by using the notion of market failure. A market failure generally embodies some force that prevents efficient allocation of resources from occurring. Market failures are generally derived from a variety of forms, including pure public good, externalities, and information asymmetry. Education is a fundamentally privately consumed good, but may be considered a quasi-public good if a significant amount of its benefit or cost flows from its production or consumption, affecting third parties (externalities) (Winston, 1999). In the past, the possible existence of positive externalities that flow from education has been used to justify the subsidization of both government and private providers of higher education (Gemmell, 1997; Maglen, 1990; Quiggin, 1999). Studies have been conducted and have ...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Editors’ biography
• Contributors’ biography
• Preface
• 1. The issue of contractible quality, quality assurance, and information asymmetries in higher education
• 2. What role for private higher education in Europe? Reflecting about current patterns and future prospects
• 3. Private higher education in Italy
• 4. From growth to decline? Demand-absorbing private higher education when demand is over
• 5. Privately funded higher education providers in the UK: The changing dynamic of the higher education sector
• 6. The evolution of a new hybrid organizational form in Chinese higher education: An institutionalist analysis
• 7. A great leap forward: Changes and challenges for private higher education in Hong Kong
• 8. Private higher education institutions in Malaysia
• 9. Privatization in higher education in India: A reflection of issues
• 10. Policy and regulation of Australian private higher education
• 11. Private higher education and graduate employability in Saudi Arabia
• 12. The obstacles and challenges of private education in the Sultanate of Oman
• 13. The rise of private higher education in Kurdistan
• 14. The new state of private universities in Latin America
• 15. Trends in private higher education: The case of Kenya
• 16. Private universities in Nigeria: Prevalence, course offerings, cost, and manpower development
• 17. Quality and accreditation of private higher education in Ghana
• 18. The gainful employment rule and for-profit higher education in the United States
• 19. Higher education: The needs of the many outweigh the needs of the few
• Index