Exploring Heterogeneous Effects of Performance-Based Funding: Implications for Equity and Policy

• In Event: Promising Scholarship in Education: Dissertation Fellows and Their Research

Abstract

This study fills multiple gaps in the performance-based funding (PBF) literature by evaluating the impact on performance and efficiency goals as well as unintended consequences of the policy. First, we have limited knowledge of the role policy dosage plays in the impact of PBF. A significant body of literature examines early performance budgeting, performance reporting, non-binding PBF 1.0, and binding PBF 2.0 policies. Two recent studies have estimated the impact of PBF 3.0 policies, which tie nearly all state funding to performance metrics. However, intermediate programs that use metrics to allocate more than 10 percent but less than 80 percent of funding have not be examined. I dub this moderate dosage PBF 2.5. This study provides initial evidence on the effects of these moderate-dosage policies.

Second, this study provides the first set of evidence on the impact of PBF policies on efficiency levels. Improving efficiency of the postsecondary sector is generally an important goal for policymakers as state higher education funding comprises a decreasing portion of public colleges’ budgets. Efficiency is also generally an explicitly stated goal of PBF policies, although rarely incorporated into the performance metrics. This study addresses this gap in our understanding of the impacts of PBF and conceptualizes efficiency in two ways: institutional and state funding efficiency. While policymakers may seek to produce more credentials with fewer state dollars, they are likely less concerned with institutional efficiency. The amount of state funding required to produce a credential may differ greatly from the amount of institutional spending (including state funds) per credential due to the diversified revenue sources of colleges and universities. The present study measures the impact of PBF on both forms of efficiency.

Third, the broad set of PBF literature has aptly identified heterogeneous policy effects. For example, community colleges appear to modify behaviors differently than research universities. These heterogeneous policy effects have not been fully explained. By using resource dependence theory to extend our understanding of the principal-agent relationship that exists between public colleges and state governments, I relate variation in the levels of financial dependence with policy effects. That is, schools more reliant upon the state for funding are theoretically more apt to meet performance goals in order to maintain this funding. The study examines student outcomes as well as exclusionary behaviors that may be a product of colleges trying to game the system. Institutions may try to limit the enrollments of groups of students who, on average, have a lower proclivity of graduating. Theory predicts that these gaming activities will vary directly with levels of dependence.

Author

• James Dean Ward, University of Southern California