Sunday, April 6, 2008

The Perverse Incentives of Student Program Funding

The past few weeks I have been trying to work on planning Econ Society events for the Fall semester. While this can be fun work coming up with new ideas, there are certainly some less exciting things to deal with with. The least pleasant task involved is going through the student funding board. Sure it is great that they pay for our events and all, but the filling and submitting forms can be a pain. Since I am a candidate for becoming the next President of the Econ Society, Astrid has been kindly showing me through this process of budgeting and working with the Student Funds Board. While reading the rules for the funding I was taken aback by a few things:

  1. There is not much in the way of getting $2500 per semester for your organization. You just fill out forms and submit them. I know some tax payer money goes towards this, but we also each pay an Activities fee in our tuition. So next time you see some long-haired hippies having Stop Sweatshop events you can smile knowing your money went to that
  2. $173,786. That is the amount of money given in the 2003-2004 academic year alone to student organizations by the SFB at Mason. I can only imagine that they are spending much more now, with more students this year than ever.
  3. Up to $1000 per semester can be given to an organization for fund raising events. The organization is allowed to keep all money from the fund rasier, the only rule is that it must not donate the money to any individual or organization. It doesn't say that the organization can't spend it on whatever they want though.
Of course the usual Public Choice theory on perverse incentives of bureacracy hold true here: bureacracies will maximize their budgets. The use-it-or-lose-it does not fully apply in this scenario though. Sure your club would be stupid to not use all the $2500, but if it uses less it does not lose any future funding. Another positive is that each organization can only get $2500 a semester as a rule, so I would hope there would be no rent-seeking or some organizations getting concentrated benefits more than the rest. Still for students and taxpayers, chances are that they are still getting shafted by this system. Every club that is rational is going to spend the entire $2500 per semester since there is no benefit to saving money.

While ruminating on all of this I stumbled across one of GMU's coolest PHd student professors, Dan D'Amico's, post on from 2004 entitled, Deliver Us From "Student Government", in which he details the same if not worse situation at the University of Texas. Dan does an excellent job in the piece pointing out the problems and hypocrisy of student governments. One part that particulary caught my eye though was on funding at University of Texas:

"In my last semester, our SGA designated an amount of $10,000 to Etc, the student organization dedicated to spreading social awareness of gay, lesbian, bisexual, transgender, etc lifestyles. Etc. applied for the money in order to host a fund raiser aimed at raising $3,000...The $10,000 is not a loan that will be returned but rather a gift to the student organization with certain stipulations. Etc. is not free to spend that $10,000 directly on its own goals and entertainment but according to SGA regulations, they are allowed to use it to fundraise an amount as low as ten percent of their initial request. Once they raise this money it is theirs to do with as they wish. This process magically turns $10,000 into $3,000 or less."

This is an amazing point that Dan brings up. Mason has a comparable system, but with more relaxed rules, but at least less money is given out. Unfortunately not even a 10% return is required for the fund raiser. So even worse, those kids whose organization you may disagree with politically, religiously, or morally, they can use the money you paid the school to have fund raisers after which they can keep the money for their own uses.

Now, you may ask what is the point of all this complaining, or what is the point because everyone already knows this happens. Don't worry, I have a reason for all of this and it is not all pessimism. Well infact, I do have a solution in mind that could be implemented to solve these incentives issues: direct rewards to organizations. The SFB should give out bonuses or rewards to be spent however they see fit to officers of clubs that do not spend all available funds for a semester. The reward amounts could be proportionate to the amount saved or not, as long as they were less than the money saved. The officers of clubs would have to think twice before requesting funds for large end of year party events, and certainly would not hold what they thought were useless events. Maybe this isn't the best solution, and maybe I have a conflict of interest in that I too want to be President of the next Econ Society, but I think it works. What do you all think?


blackbellamy said...

I would prefer a competitive funding organization versus the guaranteed money. Rent seeking might exist, however the competition will still force better event planning and efficient allocation of resources, despite what corruption might surmount.

blackbellamy said...
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Ian Dunois said...

There are alternatives for funding. As a student group, we can arrange programs for the whole student body which allows us to receive money from the Social Programming Fund. There are also special times when Student Activities would grant us extra money such as Homecoming or Mason week; this is an incentive for more active participation. I believe that it is just another rule that favors fraternities and sororities.

Fraternities and Sororities on campus have such a strong influence within the student activities office and throughout the whole Mason community. Many of times student organizations find it hard to find a room for an event because the rooms have been reserved by the Fraternities/Sororities. Note: in the fall they hold a council which books most of the open rooms throughout Mason making it difficult to host events.

I am not sure what the solution to this problem may be, but I don't believe the current system works well. As the officers of student organizations, we don't have the same incentive as the bureaucracy to increase our budget for no reason. Everything on campus costs money from the food to the rooms. The transaction costs of working with the services provided within Mason are lower than those off campus. Therefore, Sodexho is the dining service most often used compared to the better food for your money which is located off campus(Panera, Mama Lucia, Paisano's) As a businessman outside of campus to have large banquet halls to rent would be a great way to make money, but as the transaction costs are high, we find that there are not debate halls located off campus for a cheaper price. As students we tend to lean towards the process with less resistance, therefore, we would rather pay the high price for the mediocre service and food to by pass the high transaction costs.
The high budgets are not only a want of more money for events but also a reflection of the high prices of services provided on campus.

Harry David said...

Ian, I was wondering what transaction costs you are referring to, that discourage organizations from going off-campus? What exactly is so costly about hiring some business to cater/deliver for an event?

Also, regarding Kevin's point (following on Dan's) that student organizations can spend more money at a fundraiser than they intend to raise there, I was a bit confused. If an organization wants to spread its message to others, e.g., on campus at the University of Texas, what is the difference between it spending the $10,000 on a speaker and some food and flyers, say, and raising no funds, and on the other hand, spending that money on the same type of things but raising $3,000, in terms of money wasted? What makes the first more wasteful? It would be more wasteful if the sole purpose of the things purchased with the $10,000 was the fundraising, but it might be that they can spend on the same things their organization is set up for, and raise some money at the same time. I think I'm confused.

Ian Dunois said...

The transaction costs are in the payment method. To get pizza or any other food from a service off campus you must fill out a food and beverage form. Along with the form, we must give a receipt for the future purchase. This must be turned in 2 weeks in advance. In planning events it is rough working on getting a room with events management on campus; to get food from off campus just adds more paperwork. Also, there is very little communication between us and Student Activities. This is a problem because when one of the forms has a problem, we hardly ever find out about it unless we constantly check on it. As students, we do not have time to devote to following up everything. We expect once we do our part the rest will work itself out. There have been times that we have had to redo packages at the last minute and charged in extra cost for things that were already turned in.

Also there are certain companies that do not accept the Mason Org's payment method. It is an I owe you system, and if we do not fill out the information correctly on the forms we may be cheating the companies out of their service with no penalty upon the organization for not filling out the information.

If we had sourcing outside of Mason such as a checking account with a major bank, we would not have this problem. We could simply purchase whatever is desired within our budget. Hope I clarified some of the transaction costs. The list is actually longer but too long for a comment.

Kevin Hilferty said...

Harry, In regard to your second point:
One would find it normal to spend money in exchange for a good or service that they felt was worth the same or more than the cost. Thus, an organization will not be as likely to spend $10,000 for speakers, food, or rent to have an event that they feel is less valuable than the $10,000. Similarly, producers will not spend more money on investment than they intend to take in, primarily because they have accountability in losses. Student organizations with lax rules for fund raising do not have the accountability from losses to keep them efficient in making profitable returns. The organization will only try to be as efficient as possible in maximizing their own utility, but that does not mean they have to make positve returns on the money in regards to an event. If they know for fund raisers spending the whole $10,000 can ONLY net them $3,000 (or anything less than $10,000 worth of value) , and they lose no money personally themselves but get to keep the $3000 to do with what they will, why wouldn't they do such a thing? It seems to me that such occasions could happen quite often, as student populations that come to fund raisers are fixed, so the amounts they can get from them are usually fixed.