Challenging the 'Chivas Regal' effect

Great article. We should use this strategy… more money for football and more students. Its a win win.

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January 29, 2007, Monday 4:15 PM EST [/CENTER]
[B]LENGTH: [/B]737 words
[B]HEADLINE: [/B]Challenging the ‘Chivas Regal’ effect[B]BYLINE: [/B]JOSHUA BOAK, Toledo Blade
[B]BODY: [/B]
In conversations about college tuition’s runaway growth, University of Toledo President Lloyd Jacobs lays some of the blame on the “Chivas Regal effect,” a reference to a premium Scotch whisky.
Just as a whisky’s price climbs for each year it ages in oak casks, parents and students often assume higher college expenses translate to a more prestigious degree. That’s why Harvard’s $43,000 sticker shock is often met with obliging financial sacrifices.
Even lesser-known institutions, such as 1,571-student Ursinus College in Pennsylvania, have benefited from this principle. Ursinus dramatically increased its tuition in 2000 and saw a 35 percent upswing in its freshman class size, The New York Times recently noted.
Since becoming president in July, Jacobs has sought to enhance UT’s reputation, but last week he challenged the Chivas Regal effect with plans to freeze in-state undergraduate tuition for the next fall semester at its current price: $3,964.
“This is a way of saying we care about you,” Jacobs said. "It wouldn’t do Harvard any good to cut their tuition. They’re shooting at a different demography."
Yet tuition freezes have reached elite schools. With its finances eased by a $13 billion endowment, Princeton University announced last week that it will hold annual tuition flat at $33,000 next fall. The announcement came as the university battles a lawsuit claiming that its admissions department discriminates against blacks.
An Ivy League pedigree may gild senators’ and corporate titans’ resumes, but Jacobs said the influx of college graduates provided by institutions like UT is ultimately more influential. Toledo has roughly four undergraduates for each one at Princeton.
Before making the announcement, Jacobs said he consulted with members of UT’s board of trustees, the entity responsible for setting tuition rates. Ohio recently capped public universities’ annual tuition increases at 6 percent, double the rate of inflation.
By freezing tuition, UT is practicing supply-side enrollment, a strategy in which lower prices could lead to more students and larger revenues.
Officials estimate that 225 additional students - a 1.1 percent increase over the fall 2006 enrollment of 19,374 - would enable the university to break even. Fewer than that and its more than $300 million main-campus budget could face a shortfall.
Lourdes College in Sylvania successfully employed a similar plan in 2004, when it sliced its full-time annual tuition by 41 percent to $8,544. Over the past four years, enrollment is up 63 percent to 2,035.
“No institution can do this without a risk,” said Bob Turek, director of student services at Lourdes. "On the other side of the coin, it’s a risk if an institution continues to increase tuition, and prices itself out of the market."
The situation outlined by Turek is akin to a high-fashion designer who agrees to craft a line of clothes for a discount retail chain. There are few women who can afford a $2,245 tulip-print dress, but a $15 velvet skirt could amplify the designer’s cachet among the masses.
Bulk production and cheap labor allows the discount chain to profitably sell the designer’s skirt. What makes the proposition of a long-term tuition freeze dangerous for universities is that professors are neither bulk-produced nor cheap.
Harvard economist Greg Mankiw recently outlined the problem on his blog,
While the Chivas Regal effect shows why parents accept tuition increases, the “Baumol effect” demonstrates the reason why the actual costs of a college education outpace inflation, the former adviser to President Bush wrote.
Named after William Baumol, a professor at New York University and Princeton, it states that college tuition goes up for the same reason the ticket price for a Beethoven string quartet rises.
Unlike other industries that become more efficient, technological advances don’t lower a quartet’s performance expenses, unless you’re willing to settle for a violinist whose playing sounds like a screeching cat. The number of musicians required for the composition remains the same through the centuries.
This is also true for professors, who must devote years to getting a doctorate and publishing research, Mankiw wrote. Giving lectures and grading final exams takes as much time now as it did decades ago.
(Contact Joshua Boak at
(Distributed by Scripps Howard News Service,
[B]LOAD-DATE: [/B]January 30, 2007

When I realized this thread was not about Scotch…i just tuned out…