TY - JOUR AU - Hoxby, Caroline M TI - Endowment Management Based on a Positive Model of the University JF - National Bureau of Economic Research Working Paper Series VL - No. 18626 PY - 2012 Y2 - December 2012 DO - 10.3386/w18626 UR - http://www.nber.org/papers/w18626 L1 - http://www.nber.org/papers/w18626.pdf N1 - Author contact info: Caroline M. Hoxby Department of Economics Stanford University Landau Building, 579 Serra Mall Stanford, CA 94305 Tel: 650-725-8719 Fax: 650-725-5702 E-Mail: choxby@stanford.edu M1 - published as Caroline M. Hoxby. "Endowment Management Based on a Positive Model of the University," in Jeffrey R. Brown and Caroline M. Hoxby, editors, "How the Financial Crisis and Great Recession Affected Higher Education" University of Chicago Press (2015) AB - I propose a positive model of the university that generates many apparently peculiar features of universities such as endowments and tuition subsidies. The model proposes a specific objective function: a university maximizes its contribution to the intellectual capital of society, valued at social returns. The objective function is enforced within the model-that is, it leads to actions that reinforce the initial selection of the objective function. Endowments also arise naturally within the model: they are a necessary feature of certain universities, not an accident. The model has important implications for the decisions that universities should make on many fronts, but I focus on the implications for financial decisions, especially universities' endowment spending rules and portfolio allocations. The model is designed to explain America's great private research universities and very selective liberal arts colleges and-with modest adaptations-institutions like America's and Britain's great public research universities. Indeed, a ancillary benefit of the model is that it provides a justification for existence of the aforementioned institutions by assigning them a unique role in the creation of the world's intellectual capital. ER -