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

  • Nathan Favero
  • Amanda RutherfordEmail author


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.


Performance funding Equity Performance Formal model 


Supplementary material

11162_2019_9551_MOESM1_ESM.docx (34 kb)
Supplementary material 1 (DOCX 33 kb)


  1. Abernathy, S. (2007). No child left behind and the public schools. Ann Arbor, MI: University of Michigan Press.Google Scholar
  2. Alexander, F. K. (2000). The changing face of accountability: Monitoring and assessing institutional performance in higher education. The Journal of Higher Education, 71(4), 411–431.Google Scholar
  3. Angrist, J. D., & Pischke, J. S. (2009). Mostly harmless econometrics: An empiricist’s companion. Princeton, NJ: Princeton University Press.Google Scholar
  4. Balla, S. J. (1998). Administrative procedures and political control of the bureaucracy. American Political Science Review, 92(3), 663–673.Google Scholar
  5. Behn, R. D. (2002). The psychological barriers to performance management: Or why isn’t everyone jumping on the performance-management bandwagon? Public Performance & Management Review, 26(1), 5–25.Google Scholar
  6. Bell, E., Fryar, A. H., & Hillman, N. (2018). When intuition misfires: a meta-analysis of research on performance-based funding in higher education. Cheltenham: Edward Elgar Publishing.Google Scholar
  7. Berry, W. D., Ringquist, E. J., Fording, R. C., & Hanson, R. L. (1998). Measuring citizen and government ideology in the American states, 1960–93. American Journal of Political Science, 42(1), 327–348.Google Scholar
  8. Cantwell, B., & Taylor, B. J. (2013). Global status, intra-institutional stratification and organizational segmentation: A time-dynamic tobit analysis of ARWU position among US universities. Minerva, 51(2), 195–223.Google Scholar
  9. Carnevale, A. P., & Rose, S. J. (2003). Socioeconomic status, race/ethnicity, and selective college admissions. A Century Foundation Paper.Google Scholar
  10. Complete College America. (2016). “Performance Funding” Accessed September 21, 2016.
  11. Dadgar, M., & Trimble, M. J. (2015). Labor market returns to sub-baccalaureate credentials: How much does a community college degree or certificate pay? Educational Evaluation and Policy Analysis, 37(4), 399–418.Google Scholar
  12. Darling-Hammond, L. (1994). Performance-based assessment and educational equity. Harvard Educational Review, 64(1), 5–31.Google Scholar
  13. Deming, D. J., & Walters, C. R. (2017). The impact of price caps and spending cuts on US postsecondary attainment. No. w23736. National Bureau of Economic Research.Google Scholar
  14. Diamond, J. B., & Spillane, J. P. (2004). High stakes accountability in urban elementary schools: Challenging or reproducing inequality? Teachers College Record, 106(6), 1145–1176.Google Scholar
  15. Dougherty, K. J., Jones, S. M., Lahr, H., Natow, R. S., Pheatt, L., & Reddy, V. (2014). Implementing performance funding in three leading states: Instruments, outcomes, obstacles, and unintended impacts. New York, NY: Community College Research Center Working Paper (74).Google Scholar
  16. Dougherty, K. J., Jones, S. M., Lahr, H., Natow, R. S., Pheatt, L., & Reddy, V. (2016). Looking inside the black box of performance funding for higher education: Policy instruments, organizational obstacles, and intended and unintended impacts. RSF: The Russell Sage Foundation Journal of the Social Sciences, 2(1), 147–173.Google Scholar
  17. Dougherty, K. J., & Natow, R. S. (2015). The politics of performance funding for higher education: Origins, discontinuations, and transformations. Baltimore: JHU Press.Google Scholar
  18. Dougherty, K. J., Natow, R. S., & Vega, B. E. (2012). Popular but unstable: Explaining why state performance funding systems in the United States often do not persist. Teachers College Record, 114(3), n3.Google Scholar
  19. Dougherty, K. J., & Reddy, V. (2011). The impacts of state performance funding systems on higher education institutions: Research literature review and policy recommendations. CCRC working paper No. 37. New York: Community College Research Center Columbia University.Google Scholar
  20. Florida College System. (2018). “2016–17 Performance funding model.”
  21. Fryar, A. H. (2011). The disparate impacts of accountability—Searching for causal mechanisms. Paper presented at the Public Management Research Conference, Syracuse, NY.Google Scholar
  22. Gándara, D., & Rutherford, A. (2018). Mitigating unintended impacts? The effects of premiums for underserved populations in performance-funding policies for higher education. Research in Higher Education, 59(6), 681–703.Google Scholar
  23. Hagood, L. P. (2017). The financial benefits and burdens of performance funding. Doctoral dissertation. Athens, GA: University of Georgia.Google Scholar
  24. Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206.Google Scholar
  25. Hicklin, A., & Meier, K. J. (2008). Race, structure, and state governments: The politics of higher education diversity. The Journal of Politics, 70(3), 851–860.Google Scholar
  26. Hillman, N., & Corral, D. (2017). The equity implications of paying for performance in higher education. American Behavioral Scientist, 61(14), 1757–1772.Google Scholar
  27. Hillman, N. W., Fryar, A. H., & Crespín-Trujillo, V. (2018). Evaluating the impact of performance funding in Ohio and Tennessee. American Educational Research Journal, 55(1), 144–170.Google Scholar
  28. Hillman, N. W., Tandberg, D. A., & Fryar, A. H. (2015). Evaluating the impacts of “new” performance funding in higher education. Educational Evaluation and Policy Analysis, 37(4), 501–519.Google Scholar
  29. Hillman, N. W., Tandberg, D. A., & Gross, J. P. (2014). Performance funding in higher education: Do financial incentives impact college completions? The Journal of Higher Education, 85(6), 826–857.Google Scholar
  30. Jackson, C. K., Johnson, R. C., & Persico, C. (2016). The effects of school spending on educational and economic outcomes: Evidence from school finance reforms. Quarterly Journal of Economics, 131, 157–218.Google Scholar
  31. Jones, T. (2016). A historical mission in the accountability era: A public HBCU and state performance funding. Educational Policy, 30(7), 999–1041.Google Scholar
  32. Kelchen, R. (2018). Do performance-based funding policies affect underrepresented student enrollment? The Journal of Higher Education. Scholar
  33. Kelchen, R., & Stedrak, L. J. (2016). Does performance-based funding affect colleges’ financial priorities? Journal of Education Finance, 41(3), 302–321.Google Scholar
  34. Lafortune, J., Rothstein, J., & Schanzenbach, D. W. (2018). School finance reform and the distribution of student achievement. American Economic Journal: Applied Economics, 10(2), 1–26.Google Scholar
  35. Lahr, H. E., Pheatt, L. E., Dougherty, K. J., Jones, S. M., Natow, R. S., & Reddy, V. T. (2014). Unintended impacts of performance funding on community colleges and universities in three states (CCRC Working Paper No. 78). New York, NY: Community College Research Center. Retrieved from
  36. Li, A. Y., Gándara, D., & Assalone, A. (2018). Equity or disparity: Do performance funding policies disadvantage 2-Year minority-serving institutions? Community College Review, 46(3), 288–315.Google Scholar
  37. Long, B. T. (2016). State support for higher education: How changing the distribution of funds could improve college completion rates. The Miller Center.
  38. Lumina Foundation. (2016). “Frequently Asked Questions: Outcomes-Based Funding” Accessed September 21, 2016.
  39. McCubbins, M. D., Noll, R. G., & Weingast, B. R. (1987). Administrative procedures as instruments of political control. Journal of Law Economics and Organization, 3(2), 243–277.Google Scholar
  40. McLendon, M. K., Hearn, J. C., & Deaton, R. (2006). Called to account: Analyzing the origins and spread of state performance-accountability policies for higher education. Educational Evaluation and Policy Analysis, 28(1), 1–24.Google Scholar
  41. Moynihan, D. P. (2008). The dynamics of performance management: Constructing information and reform. Washington, D.C.: Georgetown University Press.Google Scholar
  42. National Conference of State Legislatures. (2015). “Performance-Based Funding for Higher Education.” Accessed June 5, 2016. Available at
  43. Paulsen, M. B., & St. John, E. P. (2002). Social class and college costs: Examining the financial nexus between college choice and persistence. The Journal of Higher Education, 73(2), 189–236.Google Scholar
  44. Posselt, J. R., Jaquette, O., Bielby, R., & Bastedo, M. N. (2012). Access without equity longitudinal analyses of institutional stratification by race and ethnicity, 1972–2004. American Educational Research Journal, 49(6), 1074–1111.Google Scholar
  45. Roscigno, V. J. (2000). Family/school inequality and African-American/Hispanic achievement. Social Problems, 47(2), 266–290.Google Scholar
  46. Rutherford, A., & Meier, K. J. (2015). Managerial goals in a performance-driven system: theory and empirical tests in higher education. Public Administration, 93(1), 17–33.Google Scholar
  47. Rutherford, A., & Rabovsky, T. (2014). Evaluating impacts of performance funding policies on student outcomes in higher education. The ANNALS of the American Academy of Political and Social Science, 655(1), 185–208.Google Scholar
  48. Smallwood, S., & Richards, A. (2011). How educational are state legislators? Chronicle of Higher Education. Accessed April 10, 2018. Available at
  49. Spence, D. B. (1997). Agency policy making and political control: Modeling away the delegation problem. Journal of Public Administration Research and Theory, 7(2), 199–219.Google Scholar
  50. Tam, M. (2001). Measuring quality and performance in higher education. Quality in higher Education, 7(1), 47–54.Google Scholar
  51. Tandberg, D. A., & Hillman, N. W. (2014). State higher education performance funding: Data, outcomes, and policy implications. Journal of Education Finance, 39(3), 222–243.Google Scholar
  52. Umbricht, M. R., Fernandez, F., & Ortagus, J. C. (2015). An examination of the (un)intended consequences of performance funding in higher education. Educational Policy, 31(5), 643–673.Google Scholar

Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.Department of Public Administration & PolicyAmerican UniversityWashingtonUSA
  2. 2.O’Neill School of Public and Environmental AffairsIndiana UniversityBloomingtonUSA

Personalised recommendations