State Financing of Research Universities: The Role of State and University Characteristics

This study estimates the effect of underlying determinants on state funding of Doctoral/Research-Extensive Universities (DREU) in the U.S. Using panel data on 98 DREU over the period from 1987 to 2002, we estimate the effect of a variety of DREU and state characteristics while controlling for institutional level unobserved heterogeneity. Unlike previous studies, we focus solely on DREU, so our estimation results are driven by the within variation of DREU, not by the between variation across different types of universities and colleges. We consider determinants not previously studied such as the competitiveness of programs and quality of students, the mix of degree programs and professional schools, the degree of research orientation of a university, the effects of economies of scale (number of students), the cost of providing education services, and other state characteristics. Not surprisingly, we find that these variables are important factors determining state funding of DREU. Finally, we provide four case studies to illustrate the use of our model in evaluating the funding position of various universities.

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