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RESOURCE ALLOCATION REFORMS: MARGINAL UTILITY ANALYSIS AND ZERO-BASE BUDGETING IN HIGHER EDUCATION* by Anthony W. Morgan Assistant to the Vice President and Assistant Professor of Higher Education University of Utah Introduction Allen Schick, in a now classic article reviewing the history of budge­ tary reform in the United States, portrays an evolutionary development of public resource allocation driven by an ethos of rationality. From the con­ trol oriented object-of-expenditure budgets introduced in the 1920s, to the management oriented performance measures introduced in the late 1930s, to the planning and analysis oriented program budgets of the 1960s, the drive for a more rational system of resource allocation is evident. Indeed, in the cul­ minating stage of this developmental saga, economists' rationalistic models play the central role, e .g . , ". . . . PPB traces its lineage to the attempts of wel­ fare economists to construct a science of finance pre­ dicated on the principle of marginal utility. Such a science, it was hoped, would furnish objective criteria for determining the optimal allocation of public funds among competing uses. By appraising the marginal costs and benefits of alternatives, it would be possible to de­ termine which combination of expenditures afforded maxi­ mum utility.1 Even though Schick is referring to the development of the Planning— Pro­ gramming— Budgeting (PPB) system developed by the economists of the RAND Cor­ poration and implemented in the federal government in the mid-1960s, one of the building blocks of this particular system— marginal utility theory— has been the basis of budgetary reform proposals from V. 0. Key's lamentful call for reform in the 1940s to Vern Lewis' proposal in the 1950s to current in­ terest in Zero-Base Budgeting (ZBB).2 This is not to say that all elements of these various proposals are virtually the same nor is it to imply any guilt by association. Marginal utility theory does, however, provide a very useful focus for evaluating a stream of historical and current budgetary re­ form proposals. Attempts to apply economic models of efficient resource allocation to budgeting for institutions of higher education have resulted in frustration on the part of reformers attempting implementation and skepticism on the part of many institutional level people. The reformers cite institutional resis­ tance, lack of trained personnel, and politics as the principal barriers to implementation, while institutional administrators cite the inappropriateness of the model to higher education as well as their inability to develop the da­ ta required by the model. The purposes of this paper are to: (1) briefly describe marginal utili­ ty analysis, and ZBB as an applied example; (2) assess some of the theoreti­ cal and practical issues surrounding such models; and (3) place the movement for more scientific and rational resource allocation in a larger methodologi­ cal and philosophical context. The focus of the paper is resource allocation rather than general institutional management and planning, even though some *A revised version of a paper presented at the Annual Meeting of the Asso­ ciation for the Study of Higher Education, Chicago, 1978. 2 of the terms and concepts used could apply to these broader areas. Although focusing on problematic issues and limitations associated with applying mar­ ginal utility theory to higher education resource allocation, the paper is not an attempt to dismiss in any wholesale way the utility of analytic models or other tools of the management sciences.3 An assessment of marginal utility models as a basis of resource alloca­ tion reform is undertaken for both practical administrative and theoretical reasons. Practically, administrators in higher education must be knowledgable about emerging budgeting and planning techniques and the theories upon which these reforms are based in order to cope with implementation and to under­ stand possible consequences for their institution. Theoretically, a good deal of the research and development work in public sector management, inclu­ ding higher education, is based on the application of economic models such as marginal utility theory. The theoretical principles underlying such microeconomic efficiency theories are appealing to those seeking a more rational system of allocating resources. One has only to read Key, Lewis, or a pleth­ ora of more current literature to appreciate the shortcoming of budgetary practices in the...

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