There’s been some recent (and widely disparate) posting on the nature and governance of universities. See, for example, here (Tsai on sports and higher ed), here (Oesterle on endowment spending), here (Bollier on the knowledge commons; see especially comments by me and Josh in the . . . comments section (duh)), here (Posner on tenure), here (Becker on tenure), and here (me on the education market of the future). More recently Becker and Posner wade back in with posts on for-profit universities.

Now comes news of Larry Summers resignation, on which see Larry here and here.

The unifying (if implicit) question is: For whose benefit are universities operated, and how is that benefit determined? It’s not such an easy question. Many would answer quickly, “the students,” but, even if this were true (and it sure seems not to be), the question would remain, why is it true? Students have almost no say in most university governance, and little ability to evaluate specific university decisions. What constrains faculties, administrators and trustees to act in their interest?

The problem is endemic to nonprofits, but especially universities. Among the (interrelated) problems in sorting all this out are these:

1. Residual claimants are not well-defined, meaning something of a free-for-all (rent seeking) and imperfect (to say the least) fiduciary relationships.
2. There’s nothing approaching unity of interest among the potential residual claimants and other stakeholders.
3. There’s no control market (a function of the above and the legal inalienability of profits).
4. “Maximization” is generally ambiguous, no matter whose preferences prevail (where the maximand isn’t profits).
5. Other markets are weak, as well, because the products on offer (ranging from education to research to a “marriage market” and beyond) are hard to observe and measure.

As I said in the post linked above, I think in particular that faculties have little accountability to students and other stakeholders, much to the detriment of students (and probably the broader society). So how should we start to talk about the merits of sports on campus, tenure and “knowledge commons”? Or how should we take Summer’s forced resignation at the hands of, as Larry points out, “segments of the Arts and Sciences faculty”? Are these “good”? How can you tell? By what standard do you judge? Is there any basis for inferring value from persistence?

For example, tenure might be an efficient solution to the problem of the “high commitment” academic workplace, as Posner suggests. But how would you know? There’s not much of a market to punish relative failure and reward relative success in teaching quality (and even research, although this market is a little better). Tenure may encourage the creation and operation of “good” norms, but it also opens the door to bad ones. Which effect prevails? And even if there were a market (if students paid directly for professors’ teaching services) how well do students’ narrow, perceived interests track their real interest or social welfare?

It’s hard for any reasonable observer to be other than disgusted at the situation at Harvard (although perhaps not surprised). What, if anything, is to be done, and by whom? Anyone have any answers?

UPDATE: Becker and Posner weigh in on the Summers debacle. I would just add that, as Posner echoes, l’Affair Étés (get it?) points up the problem with de facto residual claimancy by faculty members within the university organization, strengthening Becker’s plea for more powerful administrators. But the real problem is the relative absence of markets — and, especially with tenure, who will effectively challenge the faculty for control of the organization?

UPDATE 2:  David Friedman reminds us again that Adam Smith said it all before.  A point I also made (quoting the same excerpt) here.