Universities as an economic ‘club good’ – the importance of research and why some institutions fail

Universities are characterised, compared with other tertiary education providers, as having a significant amount of resources dedicated to research activities.  Typically, an elite university will direct 40-50% of its academic resources towards research.  This is despite the fact that university research is cash-flow negative even after all government grants and commercial revenue are taken into account. As a rule, an optimistic expectation would be that for every two dollars spent on research you may get one dollar back as either grants or revenue. Typically, it is closer to 3:1.  The financial viability of universities rests on its ability to generate teaching revenue.  Teaching undergraduates and postgraduate coursework students.  Curiously, a strong link between the university research undertaken and the courses being taught is not necessary to ensure strong student enrolments and financial viability.  The reason for this is the key role research plays in generating strong reputational benefits for the university.

Continue reading