The impact of governing structure on the pricing behavior and market structure of public institutions of higher education in the US

The governance structure of a state university system is the relationship between the individual institutions and the governing board. We hypothesize that the structure will impact both the pricing behavior as well as the market structure of the institutions. The more centralized the governance structure, the more aligned it will be with the interests of the state government. Assuming that the state’s interest is to educate in-state students, those who are most likely to remain in-state therefore generating future tax revenue for the state, institutions with more centralized governance structure are more likely to offer in-state students a lower tuition price relative to out-of-state students. This hypothesis is tested with an OLS model using data from the National Center for Education Statistics (NCES) Integrated Postsecondary Education Data System (IPEDS) for the 1997–1998 academic year. We find that the ratio of out-of-state to in-state tuition is greatest among those institutions with the most centralized governance structures. They engage in the highest level of price discrimination relative to institutions with other types of governance structures. Using the classification of instructional programs, we calculate a weighted average of the percent of duplicate degrees for each type of governance structure. We find that as the governance structure becomes more centralized, the percentage of duplicate degrees in a field decreases across institutions within the same state. This suggests states with a more centralized structure have less homogeneous institutions and educational offerings.