Funding, resource allocation, and performance in higher education systems

Abstract

This article analyzes forms of resourceallocation in university systems and theireffects on performance in institutions ofhigher education. Internationally, highereducation systems differ substantially withregard to research and education fundingsources and to ways that resources areallocated. European universities receive themajority of their funding from public sources,but private funding plays a more important rolein Anglo-American systems of higher education.Many governments use competitive elements inthe process of allocating public funds toinstitutions of higher education. Examplesinclude the implementation of performancemeasures through “formula funding”, or resourceallocation on the basis of evaluated projectproposals. Corresponding forms ofperformance-based resource allocation can befound within most higher educationinstitutions. This article analyzes how variousforms of funding and resource allocation affectuniversities at the macro-level and individualbehavior at the micro-level. A theoreticalapproach to this problem suggests thatperformance-based funding tends to bring aboutpositive changes but is also a factor inunintended side effects. Forms of resourceallocation influence the behavior of academicsand managers in higher education, particularlytheir levels of activity as well as the kindsof activities they engage in and their ways ofdealing with risks. Empirical analyses partlyconfirm these hypotheses. It can be shown thatchanges in resource allocation have an impacton the level and type of activity academicsconcentrate on but not on the long-term successof universities.