Funding mechanisms for higher education: financing for stability, efficiency, and responsiveness

D. Albrecht, A. Ziderman

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This paper reviews the experience with different categories of funding criteria. On the basis of "payment by results' reasoning, a funding allocation system would focus on the output of the higher education system, rewarding institutions according to their performance in producing graduates and post graduates (and research). Funding can also be allocated to universites according to the cost of higher education - the input method. The most popular variant employs formulas, usually based on multiplying enrollments by parameters of unit cost. Such a system may fail to offer correct incentives to universities to act efficiently (to avoid lowering entry standards and repeats, for example) unless it is carefully designed. Another option, explored only in Chile, is to transfer funds via students (through loans or grants) rather than directly to institutions. The rationale behind student based funding is to facilitate student choice, stimulate competition amongst universities and to make universities more responsive to the needs of the labor market. The authors stress that reform of higher education finance, in many countries, will first require that the broad policy framework within which universites operate be improved. This implies granting more autonomy to institutions over enrollment decisions, access to income from private sources and control over the deployment of staff and physical resources. -from Authors

Original languageEnglish
JournalWorld Bank Discusssion Papers
StatePublished - 1992


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