1. Alternatives to Performance-based Funding Symposium on Incentives, Performance and Funding Ontario Institute for Studies in Education May 15, 2015 George Fallis University Professor York University

2. Outline 1.Context: desire to change outcomes 2.Why performance-based funding? 3.What determines the outcomes? 4.Policy instruments to change outcomes 5.Improving undergraduate teaching and learning 6.Supporting differentiation in research and graduate education 7.Conclusion 2

3. Context Demography and participation: no demand growth; regional variation Budget plan: PS&T spending to decline by 1.3 % by 2017-18 University Funding Model Reform enhancing quality and improving the overall student experience supporting the differentiation process (SMAs, 6 themes, metrics) addressing financial sustainability increasing transparency and accountability Desire is to change outcomes 3

4. Why performance-based funding? Powerful common sense appeal People and institutions respond to incentives Existing funding is incentive-based (it is performance-based and the metric is enrolment) Desire to shift focus from enrolment growth Redesign funding with metrics to give incentives to other outcomes [two major problems: poor understanding of what determines outcomes and metrics do not measure outcome] 4

5. Outcomes: What do universities do? Teaching and learning bachelor’s, master’s, doctoral, professional across a range of fields academic learning; job preparation; citizenship preparation Research pure and applied across a range of disciplines (SSHRC, NSERC, CIHR) Service to Society knowledge mobilization/commercialization professors as public intellectuals and social critics 5

6. How are universities funded? Government grants (enrolment-based [89%]) Government grants ( performance [4%] and special purpose [7%]) Domestic tuition (less tuition set aside and SAG) International tuition Research grants (SSHRC, NSERC, CIHR) Research contracts (government, business, NGOs) Donations and endowment revenues 6

7. How are universities governed? Complex social contract between universities and government autonomous collegial self-governing academic freedom accountable and transparent responsive to societal needs Internal decisionmaking/outcomes Board of Governors senior administration: President, VPs, Deans professors (academic councils, and faculty associations/unions) students 7

8. The university’s objective function a non-profit organization (ie a non-distribution constraint) a multi-product organization if (TR > TC), funds could be used to increase salaries possibilities to cross-subsidize activities “the university raises all the money it can, and spends all the money it raises” the university seeks to be the best it can be across all its activities (teaching, research, and service), subject to available funds Relative priority of teaching, research, and service is crucial 8

9. Policy instruments to change outcomes Funding Model Enrolment based grants; field weighted Performance-based grants Special purpose grants Capital grants Other instruments Tuition and student assistance policy Research grants; targeted research grants Compulsory set asides System design/structural policies Information 9

10. Undergraduate teaching and learning Outcome to be changed: Declining quality increasing class size higher priority to graduate education and research declining hours of study by students mutual disengagement pact increasing number of unprepared/uncommitted students lack of pedagogical innovation How to change outcome? SMA performance metrics very unsuited to measuring quality special purpose grants better suited to improving quality compulsory set aside for teaching and learning information: report resources devoted to undergraduate education 10

11. Differentiation in research and graduate education Outcome to be changed: unclear (? excellence: to create a group of more research- and doctoral- intensive universities?) Instruments to change outcome powerful forces of isomorphism: all universities seek to be more research-intensive and more graduate-intensive current SMA process re-enforce this Competitive and targeted research grants (eg CRC, CFI) System design: designate a group of doctoral-research universities 11

12. Conclusions Keys to good public policy Clear statement of the outcome to be changed Understand what determines the outcome; especially understand how universities make decisions and how students make choices Consider alternative policy instruments and choose that which will be most effective Governments should steer but not micromanage 12