How do Revenue Variations Affect Expenditures Within U.S. Research Universities?

Using Integrated Postsecondary Education Data System (IPEDS) figures on the 96 Research Extensive Institution in academic
year 2007–2008, we employ panel data from academic year 1984–1985 to 2007–2008 to identify revenue-expenditure relationships.
Although we consider a wide range of functional expenditure categories, we focus our analysis on instructional and research
expenditures because these categories tie most closely to the core missions of research universities. Results suggest tight
relationships between some revenue and expenditure categories for some institutions. For public universities, these relationships
tend to follow expected paths. For example, a large proportion of tuition revenues tend to be spent in the functional category
of instruction. Private universities evidence a somewhat different pattern, with revenues generally expended in the pursuit
of merit aid and research. This suggests that private universities strategically deploy revenues from a wide variety of sources
to secure particular students and to conduct research activities. However, the ways in which universities and IPEDS classify
faculty work raises some questions about the transparency of various categories, and suggests that some current conceptions
of how revenues are expended on research and instruction functions may be less than straightforward.