Will the Tide Lift All Boats? Examining the Equity Effects of Performance Funding Policies in U.S. Higher Education

Abstract

This study considers whether performance funding policies systematically tend to harm some types of institutions of higher education while helping others. Building on theories of deck stacking and institutional stratification, a formal theoretical model of the effects of performance funding policies on individual institutions is developed and discussed. We find two types of likely policy effects—one which serves to improve overall institutional performance and another which exacerbates unevenness among institutions in terms of quality. We then conduct an initial empirical test of our theory, analyzing a cross-sectional time-series dataset of colleges and universities in the U.S. Our findings are somewhat mixed. The adoption of performance funding policies appears to have the ability to boost overall average levels of degree production in some instances. However, performance funding 2.0 policies are also associated with larger variance in degree production rates. We find some evidence that 2.0 policies also have heterogeneous effects on graduation and retention rates, whereby the benefits of these policies disproportionately accrue to institutions already positioned to perform well.