A Policy Screwup?

Some Italian professors told me about one of the most bizarre incentive systems in the world. The amount of fees that an Italian university can charge to students is linked to the amount of support the university receives from the national government.

Sounds sensible, right? After all, public universities in the U.S. typically try to make up lost state revenue by increasing student fees to maintain budget stability. In Italy, though, the linkage is positive: when the national government cuts back support, the universities must also cut their fees. In a time of budget cutbacks, like right now, this creates a double whammy on university finances (and the opposite in good times).

What a crazy system; and what a good way to build instability into an operation — higher education — that needs stability to function well.

Jon Luke

Not necessarily: if the extra surpluses from the economically prosperous years are invested appropriately and intelligently, then the university would be able to depend on those funds during downturns. This should promote "stability" in the sense that a disciplined university financial strategy will be pursued in both good and bad years.

These policies should help ease the burdens on families and students, who are also feeling the crunch of a recession. On the other hand, the squeeze is felt from both ends under the US system.


Think that's crazy? Look into how the Italians tax businesses. If I remember correctly, business make an estimate of how much they owe, and the government assumes that they are lying by about 30-70%. So then the government charges them two to three times their estimate, and then the business and the government have to negotiate on a final price.

The Italian government knows nothing about setting up a stable financial system.


Perhaps they were only thinking about the opposite; in an effort to reduce costs for students the government raises the amount paid to the university and the university in turn would lower the tuition. When instead the university kept its tuition rate where it was this rule was put into effect.

Just an hypothesis.


Seems to me that a university would harness the dissatisfaction of the student body and put it to work picketing the government, writing letters to leaders, legislators, and newspapers, and otherwise leveraing all that human capital to exert influence.

See, it IS an great incentive system. Kind of like the early days of the union back around the turn of the century, they made enough fuss to finally obtain certain concessions, etc. It was very much a "market-driven" approach to such things.

Seems to me that increased services and reduced fees are a pretty good incentive (and could perhaps be "marketed" to create even more effect). So, yeah, it's a great incentive system...if you think about it correctly.


This makes the least sense in a country like the U.S. where funding is primarily based on the gov't budget. On the other hand, if it were based on something else, such as the politics and policies of the university, it might make a whole lot more sense. Not only does the gov't leverage their funding to get the university to behave the way they want, but it leverages most of the revenue stream of the university.


Only in Italy. At the risk of being presumptuous, I am going to ask who bribed who to charge who for what?

James A

One would like to think that the University's in the U.S. would be stewards of money management, especially during gov't cutbacks, but in my experience, when times are bad, the schools raise fees. When times are good.....the schools raise fees. I really don't see any frugality in our school system, do you?

Bobby G

@ James A (#7),

I think there's a case you can make there about demand increases...?


Policies like this are the ones that keep Italy changing government every few months...


It is socialism, after all.

Matthew Sweeney

Italian unversitie, their graduates and the economy they go work in are on parr with the EU and US. So what? So, we can say that the counterintuitive Italian funding processes has not killed their higher education system.

Complex systems find working equilibria or die. Since their system is clearly alive and kicking, there is not much to learn from studying the details of their university funding system without looking at the entire Italian economic system.

Bleeting on and on about how crazy/bad/irrational they are, how about marvelling at the fact it works. I am sick to death of people (economists) who try to extrapolate multifactorial systems.


What the first post mentioned actually makes sense, about making sure that these universities have enough savings for times of economic instability. However, this might not be the best way to deal with these hard economic, since as mentioned in the article, the univeristy get s a double whammy. So should all the financial burden fall on the university, or as the first post brings up, should it be spread out for both ends? Since the system in Italy brings up so much economic instability, which will lead to staff cutbacks, less budget for facilities, fewer financial aid packages, etc, then maybe a system that decreases this financial burden is more efficient. Difficult economic times should not interfere too much with the quality of higher education. That's why a system like the onein the US works better.

Davidson Gigliotti

Americans often assume that the Italian system, its bureaucracy, its tax system, and other features are somehow inferior. It's true, there are certain inefficiencies. But, having been involved in the operation of a foundation in Italy over the past several years, I can say one good thing about it; when anomalies arise, one can almost always reach an accommodation.

I am not being cynical here. Italian bureaucrats have fairly wide latitude in problem-solving, and Italians in general seem basically co-operative rather than competitive. To suggest that payoffs and the like are a regular feature of doing business in Italy is incorrect. Brutta figura!

Marcello Vitale

The current Italian government is earnestly working to undermine public education from primary school to the University. It does not help a purveyor of the lowest class of television entertainment, his neofascist allies, or his egoism and localism-centered allies to have an educated and informed population. And they certainly don't care about the future of the country. Or the world, as the ruckus about the global-warming-fighting plans of the EU shows.


"It is socialism, after all.
— adora"

For the world's sake, send Americans to school.
Frankly, I am sick and tired of mass illiteracy.

Ellene Cain

I agree with Marcello...Bernasconi is a modern fascist. so Instead of murdering intellectuals=as in Chile and Argentina years ago-he reduces their number by underfunding and refusing to allow other funding.for education. Less bloody but just as evil.

Adora- the socialists LOST the last election and Bernasconi bought his way back in. It is not socialism at all.

joseph davidovic

There are plenty of instances where policies clash with logic, so why should this be surprising?

joseph davidovic

Christian Bieck

His name is Berlusconi... ;-)

Always faszinating to see cultures setting their standards to other cultures, and wondering why something that would never work here works there. Economist forget that humans beings are shaped by their cultural norms and values - basic economic theory is of anglo-saxon cultural heritage, and so by no means universal - the farther away you get from the US culturally, the less it applies. Homo oeconomicus just does not work in the simplistic way of theory (and nothing could have proven that better than the current financial crisis... ;-) )

As Davidson (#13) said: it works - so if it seems counterintuitive logic would say there is something wrong with the intuition...


I suspect it is pointless to try and see anything in this except a way for governments to doubly reward their crony universities and doubly punish less favoured institutions.
Doubtless, it is justified by some kind of bureaucratic logic that runs like this: we, the state, are able to assess which are the best institutions and to invest in them. It is furthermore only right and fitting that such institutions should be allowed to charge higher fees for their superior services.
And doubles all round for the winners! Salute!

Cam Haskell

Much of this discussion is interesting, but a little supply side. Surely, if the university is predominantly funded by government, with a contribution from students, when that government contribution is limited, the value of the product is likely to diminish too - isn't it logical (and indeed fair) to demand a lesser fee from the student?