This post builds on Michael O’Hare’s recent post about what Janet Napolitano should do at the University of California I focus on two changes to the incentive system. Al Roth shared the 2012 Nobel Prize (with my colleague Lloyd Shapley) for his work on mechanism design. This subfield offers some clues for how to achieve our worthy goal of a better education at a relatively low cost.

1. The University of Chicago’s Booth School of Business gives each MBA student a fixed amount of “currency” to bid on enrolling in classes. Prices adjust so that the aggregate demand for each class equals the total capacity for the class (perhaps 60 people). Professors receive a bonus and recognition if their course prices are high. Students face key tradeoffs. Do they pay a high price to take a class with Cochrane, Fama, or Goolsbee but then must enroll in “Average Joe” sections for their other courses? Or, do they substitute away from superstar teachers and enroll in a set of very good classes? Why can’t the UC campuses adopt some version of this? Intro and intermediate classes have several sections. At the upper division level, departments offer multiple electives that could be bench-marked relative to each other. Today, the UC has an inefficient enrollment system that maximizes “mismatch”. Each quarter, there are dozens of students signing up for my class and then dropping out while dozens of other students send me sad emails about why they have always wanted to take my class but again they are locked out. A price system would allocate the scarce resource efficiently as my classes would enroll the students who want to be there. The time averaged market prices (perhaps over 3 years) would give Deans the material they need to evaluate teacher quality. An economist would allow students to buy more of the “course bidding currency” but I have the feeling that the RBC would oppose this.

2. A second idea for improving UC undergraduate teaching is to allow the campuses to set their own tuition. Weak teaching institutions would charge a lower tuition price. Each professor at the UC would be required to post a lecture (chosen at random by Oakland) to YouTube so that potential students could judge “the goods”. The UC President’s Office could conduct some random audits where “students” sit in lectures and listen. While of course academic freedom must be protected, such accountability audits would increase Professor effort. With floating tuition, Deans would be incentivized to nudge Department Chairs and to invest more in Ph.D. graduate students who might have some skills as Teaching Assistants. Department Chairs would think harder about new faculty hires, the assignment of incumbent professors to classes and the attributes of new admits to their Ph.D programs. Rules matter!

[Cross-posted at The Reality-based Community]

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Matthew Kahn is a professor at the University of California, Los Angeles's Institute of the Environment. He specializes in the environmental consequences of urban growth and related quality-of-life issues.