The Croaking Frog Paradigm

This article consists of a lively dialogue that occurred among an eclectic group of educators and reformers (whose names and affiliations are listed at the end of the article). Their topic is the proper role of the federal government, if any, in making higher education more transparent by providing more information, especially about the quality of teaching.

In June 2009, the Pope Center published a paper by Robert E. Martin that explored the incentives in higher education, especially the incentives behind rising costs. Leading figures in both higher education and its reform movement discussed the paper, The Revenue-to-Cost Spiral, at a meeting in Washington, D.C., and then on blogs and emails.

Martin’s analysis of higher education was praised, but debate developed over his prescriptions for reform. The following dialogue, an edited version of emails, was kicked off by blog postings by Kevin Carey, policy director for Education Sector, and Neal McCluskey, associate director of the Cato Institute’s Center for Educational Freedom. I’ll summarize the highlights and then let the reaction begin.

In brief, Kevin Carey said that the public needs to know how well colleges and universities teach their students. Schools are not going to provide that information themselves—thus, outsiders must. And if the information is to be standardized, as he believes it should be, the federal government must be the one to require it.

Neal McCluskey challenged that assumption. He argued, first, that markets set standards; they will not be uniform standards, but that is all to the good because people have different demands and tastes for teaching, like everything else. If the federal government sets standards, it brings a lot of harmful baggage.

The discussion begins.

Robert E. Martin
Boles Professor of Economics, Emeritus
Centre College:

I am quite conservative and am normally averse to government intervention. So, let me try to explain why I think government needs to play an information role in this problem. I have published scores of articles on information economics and have studied the issues involved throughout my career. For the economists among us I recommend that you read the literature on reputation competition (Carl Shapiro, Johannes Hörner, and others).

One of the most important conclusions coming from this literature is that institutions have a financial incentive not to provide information about quality. This is why colleges denounce all attempts to measure quality, such as U.S. News & World Report’s and others’. It is also why they demand that any metric used has to pass the perfection test. The reason is not just that faculty do not want to be accountable, although that is part of it. This is why Jane Shaw’s argument that the institutions should volunteer the information without government will never happen. It is unambiguously not in their interest to provide that information.

Michael Rizzo
Assistant Professor
University of Rochester:

But mechanisms do arise that often force businesses to reveal information, even if it is seemingly unfavorable to them. In higher education, what are the forces that permit such “secrecy” and why does competition not force institutions to reveal?

Bob Frank (a Cornell economist) used to tell a story of frogs croaking on ponds to seek mates. Frogs would have to fight one another for a mate if they encountered each other on a dark night–typically the larger frog won. But fighting is costly, even if you win. When big frogs croak, they croak with a deep voice. This signals to all nearby frogs that, “Hey, I’m a big dude.” Since small frogs cannot imitate the croaks of big frogs, this happens to be a useful signal. And it also forces every other frog around the pond to start croaking to reveal information about themselves, even if unfavorable.

Why? Consider frogs’ croaking volume on a scale of 1 to 10, with 10 being the loudest. If, for some reason, all frogs with a size of 4 or larger croaked, and all frogs that were smaller did not (i.e., those at size 1, 2, or 3), what would you expect the size of a frog to be that you randomly encountered, but that was silent? If frogs are evenly distributed, it would be a 2. Thus, if the frog was actually larger, say a 3, it would have an incentive to croak. Now all frogs from size 3 to 10 are croaking. So a silent frog could be expected to be a 1.5, not a 2 . . . so frogs bigger than 1.5 now have an incentive to croak . . . and so on, until every frog on the pond croaks (up until the last one I suppose).

The fact that there is a credible signal—and one that is costly to fake—forces all frogs to reveal information about themselves. The small frogs want to reveal that they aren’t the smallest frogs in the pond.

Is there really no such analogous signal in higher education? And if one such signal does exist, and yet we see these information problems persist (as they do), then we must ask what forces are not allowing such a signal to play its role in forcing firms to reveal information.

It is not enough to say that it is in their financial self-interest not to do so. There should be many dimensions of quality that can appeal to a diversity of students and thus earn revenues. Higher education can act like Wal-mart, Target, and other stores in retailing; each reveals honestly the differences in their quality and approach, attracting the particular customers they think will maximize their profits. The current equilibrium suggests to me that students and parents and agents want what the schools are offering, at these prices and subsidy levels.

Robert E. Martin:

Good analogy. So, we have a pond full of non-croaking frogs; how do we get them to croak? As long as they can claim there is no croak metric, they can justify not croaking. We also know, at least I know, they spend very little effort studying what makes croaking work—if you don’t search for a croaking metric, you don’t find it. Well, I have to go fishing; so I’ll stop croaking for now.

Jane S. Shaw
President
John W. Pope Center for Higher Education Policy:

Now I know how economists talk to one another.

Neal McCluskey
Associate Director, Center for Educational Freedom
Cato Institute:

I’m really enjoying this discussion, and would have added to it were I not knee-deep in trying to defend the libertarian view. My
response to Kevin’s second response, which includes all I would have emailed (and probably way too much more!) is now up.

Kevin Carey
Policy Director
Education Sector:

There are some pretty straightforward and useful distinctions to be made here regarding types of regulation, no? I don’t want the federal government telling colleges and universities how to conduct their business, and I’m glad state governments take a relatively light role in that respect as well. I’d just like the government to mandate disclosure of useful information that, as Bob points out, colleges are unlikely to disclose on their own.

I know there’s an argument to be made that information is a precursor to stronger direct regulation, but I don’t think history really bears that out with respect to higher education. As I noted in our discussion a few weeks ago, the federal Student Right to Know Act, which mandated that universities provide information such as graduation rates, is almost 20 years old now and Uncle Sam isn’t doing anything to regulate colleges based on graduation rates. And aren’t the capital markets a good example of the government mandating standardized disclosure of information but then sitting back (present extraordinary circumstances notwithstanding) and letting people use the information to make their own decisions?

Jane S. Shaw

Back to croaking. Mike, can you tell us what that “credible, yet costly to fake” signal is?

Michael Rizzo:

Out of respect for F.A. Hayek, who pointed out that knowledge is widely dispersed and not conveniently collected, I would defer that answer to the thousands of institutions out there. I can hypothesize a few signals of quality. Some that come to mind include: putting entire courses online with sample lectures from professors, an honest presentation of where student dollars are being spent, an honest presentation of who is staffing which classes, an honest presentation of student outcomes (not just cherry-picking the Fulbright scholars and putting them on the webpage), and so on. The point I was making is that there has to be an anti-competitive force (or forces) that prevents such unilateral disarmament.

Many quality institutions already have a loyal and embedded fundraising apparatus (alumni and friends) that knows something about the quality of each school. Perhaps we can learn something about quality from alumni donations, affection for the school, etc. There would be no information “problem” if the public were able to understand these revealed preferences.

Ignoring the public choice issues for the time being, what information could the federal regulatory agencies mandate schools to present that would be even moderately useful to students? After all, if you look at IPEDS (a Department of Education database), you will see that virtually all of the information you can imagine the government would mandate is already reported there. I return to Hayek.

Even if a student found that my university (the University of Rochester) has similar class sizes, expenditures per student, amenities, and graduate students teaching courses, as our nearest competitor (say, for example, Brandeis), would he then just flip a coin about where he should go to school? No.

Let’s imagine some information that you might think the government should mandate disclosure of. Suppose that the government forces the University of Rochester to reveal that a non-tenure-track faculty member (that would be me) teaches virtually every introductory economics student at the school, rather than some of our more “famous” professors. Is that good, bad, or other?

Brian Mannix
Former Associate Administrator
Environmental Protection Agency:

The pond is not altogether silent; some colleges croak to some degree. For example, at one time, I believe that all colleges except Harvard were in the habit of disclosing the number of National Merit Scholars in the matriculating freshman class. And Harvard was the exception that proved the rule, because it explained very loudly that it had a policy of not disclosing that information.

I continue to think that reputation markets are fertile ground in which to sow the seeds of improved performance, and that their undoubted “market imperfections” are manageable challenges compared to the imperfections that the coercive hand of government would introduce.

Roger Ream
President
Fund for American Studies:

Some on this list seem to think there is an information problem. Not enough croaking frogs, I suppose.

As someone in the market at the present time looking to purchase higher education for my daughter, I don’t find a compelling need for information beyond what is already available. I can find average SAT scores, graduation rates, breakdowns of cost, average class size, full-time faculty per student, course offerings, majors, etc. Plus, I can read reviews from perhaps a dozen or more college guides with different perspectives. They offer me an inside look at the social life, the campus culture, etc. Plus, schools offer campus tours, information sessions, and opportunities to meet alumni in one’s local area. And, of course, I talk to lots of parents of children attending many of the schools in my state and adjoining states, and my daughter has learned a lot from friends at the schools she is considering.

I feel much more informed in purchasing a higher education than when I go to purchase a car, a digital camera, or a refrigerator.

Quality is a very subjective standard in higher education. The learning that takes place in the classroom is but one factor. Prospects for employment after graduation and graduate school admissions are two other factors. The social atmosphere and campus culture can be critically important. The greatest value I got in college was outside the classroom; that is what shaped my career path, not the learning that took place in the classroom.

I suspect that even if the libertarians on this list were to concede that we need government to mandate the disclosure of information, we would begin an even more heated debate regarding what information is valuable and how to evaluate the data.

A. Lee Fritschler
Professor of Public Policy
George Mason University:

Roger has taken the words out of my mouth. I have held back on participating in this exchange (which has focused more on biology than education) until now.

Speaking from the perspective of a former president it seems to me the public is awash in data about colleges and universities. The public knows (or could know if they looked) as much about universities as those on the inside know. The piece which is missing and seems to be the root of most of the information lacking/transparency criticism is an inter-university metric on what students are learning at place A as opposed to B. I think we all know coming up with such a metric is difficult at best (an approximation, as someone suggested earlier, is a terrible idea. It is also expensive and fraught with possibilities of misuse. Roger says it well: What do we include in the data? How about learning outside the classroom? That one will keep the consultants busy for years.

I also must add that the idea of turning the measurement of the quality of student learning over to campus, state, or federal bureaucracies is a radical, revolutionary idea. Some think a good one, of course. I do not. The task has been in the hands of professional faculties for centuries and the system has worked well.

I was deeply involved both in the university and in government on collection of campus crime data. It was an expensive, multi-year effort. Is anyone using the data? Not many.

A study of the U.S. News & World Report data by Dickinson College and the Pennsylvania Association of Colleges and Universities showed that for private institutions, the key variable in the rankings is per-capita endowment. As a result, those institutions moved quickly to include artwork and other valuables in a line item labeled “funds functioning as endowment”—simply to be able to report higher endowments. Why not play the game? Imagine the gaming that would take place with an approximate learning metric.

A bigger question is to what purpose would more data be put, and why give government the right to collect it? I believe it is still illegal for universities to disclose student grades to anyone, including parents, unless a student gives permission. Outcomes tests would be given the same individual protection, I assume. I see some challenges on this score.

For those comfortable with an expanded government role in data collecting, I suggest they read James C. Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale University Press, 1998). I feel out of character recommending this book to libertarians.

Neal McCluskey:

As always, Professor Fritschler has hit the nail right on the head (and saved me considerable typing time!) It seems that, ultimately, the data Kevin and others are looking for are metrics of student learning, but that sounds a lot better in the abstract than the reality of the huge variety of things that colleges teach and students want to learn. I also think the experience with the No Child Left Behind (NCLB) law could be instructive, with Washington demanding “proficiency” but states finding myriad ways to make that largely meaningless. And this is not to mention very reasonable concerns about “teaching to the test” and “narrowing the curriculum,” all in the context of a K-12 system that is supposed to teach kids more or less standard things, at least compared to higher ed.

The next installment will resume the argument over the severity of the information problem, beginning with Robert Martin’s argument that it exists and that it is serious.

Dialogue Participants:

Jane S. Shaw
President
John W. Pope Center for Higher Education Policy