Endowment Size Research Articles

Portfolio Choice with Endogenous Donations - Modeling University Endowments

University endowments differ from other institutions in that donation income and spending rates are of equal importance to asset allocation decisions. Our paper develops an optimal endowment framework with endogenous donations income through a feedback dependence based on investment performance. We investigate both substitution and wealth effects due to incomplete markets and nonlinear donation risk. Looking at empirical data on actual US endowment practices, we validate our donations processes. Large endowments take riskier positions. However, this effect weakens with increasing donation risk, documenting another form of the substitution effect empirically. Spending rates are time varying and determined by relative investment opportunities and the corresponding interaction with endowment size.

Give what is required and take only what you need! The effect of framing on rule-breaking in social dilemmas

AbstractTo investigate the impact of framing on rule-breaking in social dilemmas, we incorporated a rule in a 1-shot resource game with 2 framing treatments: in one frame, we offered a give-some dilemma (i.e., a variant of a public goods game), and in the other frame, a take-some dilemma (i.e., a variant of a commons dilemma game). In each frame, all participants were part of 1 single collective sharing a common good. Each participant was initially equipped with 1 of 5 different endowments of points from which they must give/were allowed to take amounts to/from the common good. The rule established outcome equality between participants by prescribing the exact amounts of what to give/take to/from the common good, which was finally divided equally among participants. Participants decided whether to cooperate and comply with the rule or to break the rule to their own advantage and to the detriment of the collective (i.e., giving lower/taking higher amounts). The results of an online experiment with 202 participants showed a significantly higher proportion of individuals breaking the rule in the take-some dilemma than in the give-some dilemma. In addition, endowment size influenced the proportion of rule-breaking behavior in the take-some dilemma. However, the average amounts of points not given/taken too much were not different between the 2 dilemma types.

Telemedicine services in higher education: a review of college and university websites

Objectives To identify rates of telemedicine provision during the COVID-19 pandemic and predictive institutional factors among 4-year and graduate colleges and universities. Participants The study (n = 364) included the websites (.edu) of accredited public nonprofit, private nonprofit, and private for-profit institutions of higher education in the United States that award bachelors, masters, or doctoral degrees. Methods Using digital content analysis, human coders analyzed institution websites for informational text indicating student telemedicine services. Results Findings indicate that a minority of 4-year and above institutions offer telemedicine access. Institution type, institution size, and the presence of campus student health services were predictive. Endowment size and Minority Serving Institution status were not predictive. Conclusion This study illustrates the ongoing need for increased access to remote health services across higher education, especially among smaller private and public nonprofit colleges and universities and all private for-profit institutions.

Academic Endowments in the United Kingdom – Do They Make a Difference?

This paper analyses the role and significance of the endowments for the UK higher education system. We have systematised the metrics commonly used to measure the performance of the academic endowments. To collect the data about universities and colleges, we exploited the data provided by the HESA (Higher Education Statistics Agency) that collect and disseminate UK higher education data and the data provided by the Charity Commission for England and Wales. The size of the university and colleges endowments is valued using their respective financial statements, using endowment reserve account of the balance sheet.The academic endowments linked with the UK universities and colleges are estimated to be worth £15.8 billion in 2020. According to the number of the endowments linked with universities and colleges endowments, they play a significant role in the UK higher education system. However, there is a notable difference concerning endowment size between the few most reputable academic institutions and other universities and colleges. For example, the two largest endowments (the University of Oxford and the University of Cambridge with accompanied colleges endowments) in 2020 had a share of 75% measured by the size of the endowment assets. Moreover, this 75% has been stable during the last several years.In addition, the UK academic endowments are much smaller than their US counterparts and thus generally have lesser significance for the UK higher education system, while they may play a significant role for particular institutions. The endowment size per student has also been much smaller in the UK than in the US. Except for the six universities and colleges, the share of the income coming from endowments and donations in the total income has been relatively low, 2% or less. Considering the long history and tradition of the endowments in England, their role in the UK higher education system is deeply rooted. However, with their historical performance and significance for some higher education providers, there is an opportunity for a more prominent role in the future.

Association Between COVID-19 Relief Funds and Hospital Characteristics in the US

In response to financial stress created by the reduction in care during the COVID-19 pandemic, hospitals received financial assistance through the Coronavirus Aid, Relief, and Economic Security (CARES) Act program. To date, the allocation of CARES Act funding is not well understood. To examine the disbursement of the High-Impact Distribution CARES Act funds and the association between financial assistance and hospital-level financial resources prior to the COVID-19 pandemic. This cross-sectional analysis of US-based hospitals and health systems assesses the hospital characteristics associated with CARES Act funding with linear regression models using linked hospital and health system-level information on CARES Act funding with hospital characteristics from Hospital Cost Report data. Hospital and health system CARES Act financial assistance. Hospital and health system affiliation, status, and financial health prior to the COVID-19 pandemic. Data analysis took place from December 2020 through June 2021. The analysis included 952 hospital-level entities with an average payment of $33.6 million, most of which was received during the first payment round. Wide ranges existed in CARES Act funding, with 24% of matched hospitals receiving less than $5 million in funding and 8% receiving more than $50 million. Academic-affiliated hospitals, hospitals with higher pre-COVID-19 assets and hospitals with higher COVID-19 cases received higher levels of funding, while critical access hospitals received lower levels of financial assistance. A 10% increase in hospital assets, endowment size, and COVID-19 cases was associated with 1.4% (95% CI, 0.8% to 2.0%; P = .003), 0.2% (95% CI, 0.1% to 0.3%; P < .001), and 3.5% (95% CI, 2.8% to 4.2%; P < .001) increases in CARES Act funding, respectively. In this cross-sectional study of US hospitals and health systems, findings suggest that High-Impact Distribution CARES Act funds may have disproportionately gone to hospitals that were in a stronger financial situation prior to the pandemic compared with those that were not, but funds also went disproportionately to those that eventually had the most cases.

Is change worth it? The effects of adopting modern agricultural inputs on household welfare in Rwanda

This study investigates the driving factors that influence farmers’ decisions to adopt modern agricultural inputs (MAI) and how this affects farm household welfare in rural Rwanda. To account for heterogeneity in the MAI adoption decision and unobservable farm and household attributes, we estimate an endogenous switching regression (ESR) model. The findings reveal that size of land endowment, access to farm credit and awareness of farm advisory services are the main driving forces behind MAI adoption. The analysis further shows that MAI adoption increases household farm income, farm yield and equivalised consumption per capita. This implies that adopting MAI is the most consistent and potentially best pathway to reduce poverty among rural farmers. The study hence suggests that policymakers should align the effective dissemination of MAI information and farm advisory services, strengthen farm credit systems and improve market access – most crucially at affordable prices – among small-farmers throughout Rwanda.

The Role of Endowments in Financial Markets: Key Trends in 1990-2020 in the USA (on the example of the US education sector)

This article describes the key trends in the development of endowments as institutional investors using the example of US educational endowments in 1990-2020. The paper also gives an overview of the world structure of endowments assets by regions and sectors. Although much research has been done on investment behaviour and return of endowments, there are not so many works analysing the long-term trends in the development of endowments. The study uses methods of systemic and comparative analysis and statistical methods. The article demonstrates an intensive growth of endowment assets during 1990-2000 and the following maturing market. Special attention is given to identifying and analysing changes in the structure and concentration levels of the endowment's market. The author suggests that the earlier model of many different-sized funds has changed to the model where significant funds dominate and concentrate most assets. The paper also explains the changes in the investment behaviour of endowments, including how the size of endowment influences the asset structure of funds' investment portfolios and return. The paper shows the growing role of state universities endowments, an increase in the regulatory burden. Also, it presents some forecast of key trends in the development of endowments in the long run.

Mutual reinforcement of academic reputation and fossil fuel divestment

Non-technical summary By the end of 2020, 190 universities and colleges worldwide had publicly committed to divest partially or fully from fossil fuel holdings, to help mitigate global heating. We find a statistical correlation between the status of universities in the world rankings and decisions to divest endowments from fossil fuel. Further analysis suggests causation in both directions. Not only do the best divest, but divestors get better. Technical summary Previous studies have explored connections between environmental responsibility and the financial performance of business firms. Here, we explore connections between a particular form of environmental responsibility, divestment from fossil fuel, and the reputational status of a different form of organization, universities. We find a strong and robust link between world university rankings and commitments to divest endowments from the fossil fuel industry, with higher-ranked universities divesting at higher rates compared to lower-ranked universities. Rates of divestment also differ significantly between countries, and according to the political orientations of provinces and states. We do not find evidence for links between divestment treated as a binary variable and a university's number of students, size of endowment, or type of endowment. We use time lags to test whether the rank-divestment correlation may arise due to effects of rank on divestment and/or vice versa. These tests indicate influence in both directions. In light of these results, we predict universities that have not yet divested will face mounting peer pressure to do so. Social media summary Higher-ranked universities divest more frequently, and divesting universities improve more in the rankings.

We, the rich: Inequality, identity and cooperation

Inequality not only generates status differentials between rich and poor individuals, it also generates status differentials between groups of different composition and income level. We organise the social structure within which groups are embedded to manipulate their composition and relative status, thus inducing weaker or stronger group identities in their members via the processes of social categorization, identification and comparison. We therefore manipulate the fundamental components of group identity rather than resorting to ad hoc identity reinforcement tasks. How strongly individuals identify with each group will ultimately determine the degree of cooperativeness within the group and the whole society.We find that the impact of inequality on social cooperativeness is not trivial: cooperation varies with the strength of the group’s identity as predicted by social identity theory. In particular, high endowment homogeneous groups cooperate most and increasingly over time. Low endowment homogeneous groups display intermediate levels of cooperation. Heterogeneous groups cooperate least, a result driven by lack of cooperation on behalf of the rich. As endowment sizes and groups are exogenously allocated, we argue that our findings are a lower bound for the effects generated where endowments and groups are endogenously determined, in or outside of the laboratory.

WALKING THE TALK?: Jesuit Universities and Fossil Fuel Investments

The student-led fossil fuel divestment (FFD) movement urges universities to remove investments in fossil fuel firms from their endowment portfolios to inspire reductions in carbon emissions and help control climate change. This article explores the movement in U.S.-based Jesuit universities by documenting their endowment size, current divestment status, and rationale for or against divesting. These institutions held a total of US$13.8 billion in their endowments as of 2019, making their investment decisions relevant and material. The article in general examines the alignment of divestment actions with the commitments of Jesuit universities to environmental stewardship and social justice as expressed in their mission statements and Pope Francis’s encyclical Laudato Si’. Two out of the 27 Jesuit universities in the U.S., namely, Georgetown and Seattle University, were already committed to FFD by April 2020; after accounting for branch campuses, this represents a commitment of 13.3% among all U.S.-based Jesuit universities. This is appreciably higher than the 4.12% divestment rate among all private 4-year universities in the United States. Each of the 27 U.S.-based Jesuit universities was contacted to verify their endowment size, divestment status, and position on FFD. The 13 who responded stated their commitment to environmental protection and sustainability, and some reported their rationale for or against divesting. Results suggest that the investment strategies of Jesuit universities are a “work in progress,” and are likely to evolve as they align with their common Roman Catholic and Jesuit identity and mission. The reasons stated for deciding not to divest, moreover, are consistent with previous literature. A second article in this issue of the Journal of Management for Global Sustainability explores those reasons in detail and broadens the theme of divesting to encompass any organization.

Examining the Impact of Divestment from Fossil Fuels on University Endowments

Between 2011 and 2018, 35 American universities and colleges divested, either partially or completely, their endowments from fossil-fuel holdings, marking a shift toward sustainability in university endowment investment. However, the decision by these universities to divest was often marred by controversy, owing to conflicts between student- and faculty-led coalitions and the university board. Principally, endowment fiduciaries are averse to divestment decisions because they think that it will hurt the endowment's value, but this concern, motivated by a narrow interpretation of fiduciary law, can be empirically examined. To date, the academic study of the effect of divestment on endowment values has focused on the top university endowments and has produced mixed results. Our study is different from the extant but limited literature in this area in that we examine holistically the impact of total or partial divestment on endowment values for all universities as well as a select group of institutions that are illustrative of their peers by endowment size. More importantly, we evaluate the assumption that divestment does injury to endowment values through legal and empirical lenses. Results from our difference-in-differences analyses of the effect of full and partial divestment suggest that either form of divestment does not yield discernible consequences--either positive or negative--for endowment values, at statistically significant levels. However, we do find evidence that divestment improved the value for three of four universities that we examined through synthetic control analysis, with the greatest increase in value at a university with a very large endowment (Stanford University) and modest increases at two universities with mid-sized and large endowments, respectively (University of Dayton and Syracuse University). Thus, the negative consequences of divestment may be overstated in the near-term. This challenges the assumption that divestment yields negative returns to endowments and cracks open the door for endowment fiduciaries to divest without violating duties of loyalty and prudence. We hope that this study both grounds and advances the debate about endowment divestment with empirical evidence and a reasoned discussion of its costs and benefits.

The impact of smallholder farmers’ participation in avocado export markets on the labor market, farm yields, sales prices, and incomes in Kenya

Smallholder producers in sub-Saharan Africa are often unable integrate into markets and access high-value opportunities by effectively participating in global chains for high-value fresh produce. Using data from a survey of large avocado farmers in Kenya, this study examines the determinants and impacts of smallholder-producer participation in avocado export markets on labor inputs, farm yields, sales prices, and incomes, using a switching regression framework to control for selection effects. We found that farmers who participate in export markets differ significantly from nonparticipating farmers: They are older, have somewhat larger farms, have received more training, and own more avocado trees of the Hass variety, the type favored in export markets. Living near a well-functioning avocado farmers’ group is also positively associated with participation in export markets. Participation in avocado export markets will have positive impacts on incomes, revenues, prices, and labor inputs. However, there is an offsetting effect in terms of higher prices and lower volumes, reflecting the stricter quality requirements of export markets. Applying a decomposition analysis, we found that not only differences in endowment sizes, but also differences in returns from endowments in export versus domestic markets, are key to understanding differences in yields, revenues, sales prices, and labor inputs. This suggests that policymakers should not only focus on resource accumulation for farmers, but also pay attention to the inclusiveness of export market participation for smallholder farmers.

Do big countries always win a tariff war? A reappraisal

AbstractIn their seminal paper, Kennan and Riezman () show that a “sufficiently” big country is better off under a tariff war compared to free trade. This prediction derived in a setting where market power stems from differences in factor endowments, is somehow puzzling, as the majority of free trade agreements notified to the GATT/WTO are initiated by large rather than small economies. To resolve this puzzle, I use a modified version of the Kennan and Riezman () model to show that the outcomes of a tariff war depend not only on countries’ endowment sizes, but also on consumption requirements. In particular, free trade benefits two asymmetric countries if the subsistence level of consumption in the large country is sufficiently higher than in the small country. In addition, free trade between symmetric countries may harm the country with a lower subsistence level of consumption. The theoretical framework presented in this paper supports the idea that even small countries enjoy some market power and thus helps understand why large economies seek free trade in natural resources with smaller commercial partners.

Decision making in the prisoner's dilemma game: The effect of exit on cooperation and social welfare

AbstractThe prisoner's dilemma game is a mixed‐motive game that offers two players the simultaneous choice between a cooperative and a defective alternative. An often neglected aspect of such a binary‐choice game, however, is that in many real‐life encounters, people can choose not only to cooperate or defect, but they also have a third option: to exit the social dilemma. Although in the literature a consensus has emerged that the addition of an exit opportunity benefits cooperation, there is only scant research into its effect on social welfare. In order to allow a direct comparison of cooperation rates and welfare levels across binary‐choice and trinary‐choice games, in this study, we used a design in which the same participants played similar games with and without an exit option (i.e., a within‐subjects design), and this in a range of structural variations. The findings of our study indicated that the aggregated outcome of both players is generally lower in games with an exit option than in games without an exit option. Moreover, our results showed that the efficiency of the exit option strongly depends on the specific outcome structure of the game (in terms of its endowment size, (a)symmetry, and level of noncorrespondence). In the discussion, it is argued that the implementation of an exit option as a strategy to increase social welfare should be critically assessed.

An elementary model of export tax war

In this paper, the author uses a generalized version of Kennan and Riezman (Int Econ Rev 29(1):81–85, 1988) trade war model with Stone–Geary preferences, where countries can choose between a Nash tariff or an export tax. Three scenarios emerge from this setting, namely: the standard tariff war, the export tax war and a mixed scenario—“the tariff-export tax war”—where one country applies a Nash tariff, while the other imposes an export tax. In this setting, countries derive their market power not only from their relative endowment size, but also from their subsistence consumptions. As a consequence, a large country does not necessarily win a trade war if it has a substantially higher consumption requirement than the small country. This finding explains why large economies sign trade agreements with small counterparts that prohibit the use of tariffs and export taxes.

Creating a Domain of Losses in the Laboratory: Effects of Endowment Size

This study examines the effects of initial endowment size on individual behavior in a binary choice game with no dominant strategy. Subjects make decisions in two, theoretically identical sequences, differing in initial endowment levels only. Each decision involves a choice between an option with a certain loss and an option with a loss that is increasing in the number of individuals who choose it. For the higher endowment level, all subjects are guaranteed a positive payoff. For the lower endowment level, subjects who choose the uncertain loss option could receive a negative payoff. The results indicate that in the first round of play, subjects with the higher endowment level choose the certain loss option significantly more often than subjects with the lower endowment level. There are, however, no significant differences in behavior beyond the first few rounds of play.

Invest Like an Endowment

This paper studies the investment returns and asset allocation policies of college and university endowments who share annual performance and asset allocation data with the National Association of College and University Business Officers (NACUBO) annual endowment study. In this paper, we review the performance data and asset allocation policies by the size of the endowment assets as set forth by NACUBO. Further, we investigate how an individual investor could replicate the high risk-adjusted returns based on the asset allocation policies of reporting institutions, including Yale University.

The effects of endowment size and strategy method on third party punishment

Numerous experiments have shown that people often engage in third-party punishment (3PP) of selfish behavior. This evidence has been used to argue that people respond to selfishness with anger, and get utility from punishing those who mistreat others. Elements of the standard 3PP experimental design, however, allow alternative explanations: it has been argued that 3PP could be motivated by envy (as selfish dictators earn high payoffs), or could be influenced by the use of the strategy method (which is known to influence second-party punishment). Here we test these alternatives by varying the third party’s endowment and the use of the strategy method, and measuring punishment. We find that while third parties do report more envy when they have lower endowments, neither manipulation significantly affects punishment. We also show that punishment is associated with ratings of anger but not of envy. Thus, our results suggest that 3PP is not an artifact of self-focused envy or use of the strategy method. Instead, our findings are consistent with the hypothesis that 3PP is motivated by anger.

The consequences of a refund in threshold public good games

We revisit the question of whether a refund increases efficiency in threshold public good games. New experimental evidence is presented on the effect of endowment size. We demonstrate that a refund increases efficiency if and only if the endowment is small relative to the threshold. We also propose a novel way to analyze the effect of a refund. Specifically, we argue that a refund increases efficiency only if significantly many groups converge towards zero contributions in the absence of a refund.

Why Are University Endowments Large and Risky?

We build a model of universities combining their real production decisions with their choice of endowment size and asset allocation. Variation in opportunity cost, that is, the productivity of internal projects, has a first-order effect on these choices. Adding the UPMIFA-mandated 7% payout constraint, the endowment size and asset allocations match those empirically observed. This constraint has little effect on universities that do not value the output of their internal projects but harms those that do: it prevents the endowment's use as an effective buffer stock, thereby increasing the volatility of production, and it slows the growth of the most productive universities