Scientific research has come to dominate many American university campuses. The growing importance of science is due to exciting breakthroughs in biology, information technology and advanced materials that have promise of tremendously improving human welfare. Along with the growing importance of science has come a growing flow of external funds to universities to support research.
What is not well known, however, is that increasingly the costs of research are being funded at universities are coming out of internal university funds. Over the last three decades of the 20th century the percentage of university research that is funded out of internal funds rose from about 11 to 20 and internal research expenditures per faculty member almost quadrupled in real terms.
Our paper sketches the reasons for the tremendous increase in university expenditure on research out of internal funds including changes in federal indirect cost reimbursement policies and the growing cost of start-up funds for new faculty. We present evidence, based upon a survey of department chairs, deans and vice presidents for research at over 200 public and private universities, on the magnitude of start up packages received by researchers in science and engineering disciplines.
We then use panel data for 21 years and over 200 universities to estimate the impact of growing internal expenditures on research on student/faculty ratios, the substitution of lecturers for tenure track faculty, on average faculty salaries and on tuition levels at public and private universities. Among our most important findings is that universities whose research expenditures per faculty member out of internal funds has been growing the most rapidly in absolute terms, ceteris paribus, have the greatest increase in student/faculty ratios. So while undergraduate students may benefit from being in close proximity to great researchers, they also bear part of the costs in the form of larger class sizes and fewer full-time faculty members.