On the one hand, it seems like "no" - hence some universities like Caltech choose to remain small, while others like Boston University & MIT don't merge into a single super-university in spite of having campuses that are side-by-side.

On the other hand, I don't see why it wouldn't apply. There should be an advantage to pooling resources, e.g. with library subscriptions, campus transport, and so on. At the academic level, more students/faculty would also allow the university to teach more specialized subjects.

Does economy of scale apply to universities? If yes, why are Caltech, Boston University/MIT etc (and Imperial/UCL for that matter) making the decisions they do? If not, why not?

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    BU and MIT are "side by side" only if you count "across from each other on opposite sides of the Charles River". May 4, 2021 at 0:41
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    There's already a glut of degree holders where jobs don't exist. Exclusivity is what makes these places prestigious, let a bunch more people in and nobody cares, you're no longer in an exclusive club. I should also add you can already buy into these places if you offer enough money. Donate a building. May 4, 2021 at 2:12
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    @EthanBolker That's pretty side by side if you ask me ... May 4, 2021 at 2:35
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    MIT combining with BU seems a bit far-fetched, maybe an alternate framing would be: why doesn't MIT double its size? It could double its admissions/hiring rates and still remain very, very selective.
    – cag51
    May 4, 2021 at 2:41
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    I doubt MIT could double admissions and remain very selective. This is because the percentage of people who they want to attract is very small. Also, top people have other choices too, e.g., Caltech, Stanford. So the pool of students they attract is very small. If MIT doubles in size, it'll start attracting 'above average' students as opposed to 'above above average' students. As a result, its level drops. I'm sure they are happy to cater for just the top 0.00....0001% of students given that they have all the resources they ever need. May 4, 2021 at 5:26

3 Answers 3


Yes, economy of scale does apply to universities. Having more students reduces the operating cost per student.

The universities you have listed are research universities. They prioritise spending on research, and not students. They do not care about revenue as they have plenty of money and do not exist for the purpose of gaining more money.

For institutions that have little money and get most of their money from students, I've sometimes heard it said that 300 students is "enough" to achieve economy of scale.

Some universities achieve economy of scale using purchasing consortia. In these constoria, several universities work together to negotiate a favorable contract from a vendor. This is quite common for public universities.

  • Its true for Caltech and perhaps MIT, but Imperial and UCL get most of their income from teaching. May 4, 2021 at 12:00
  • @IanSudbery These pages seem to say teaching is <40% of revenue for both. Also, this is about expenditure, and teaching revenue pays for nonteaching expenses at most universities. issuu.com/imperialcollegelondon/docs/… ucl.ac.uk/about/how/financial-information May 4, 2021 at 12:14
  • I stand corrected, although those are figures for income from fees, rather than income from teaching. Its a bit hard to figure out from those statements - my own instution breaks down the "Funding body grants" and "Other income" into research and teaching in note 4. We have about the same fee income as imperial, but another £150m of the Other incomes is attributed to teaching, which would take both up to almost exactly 50%. May 4, 2021 at 15:24

Universities are not for-profit organizations.

In fact, they are mostly purposely money-losing organizations. The tuition they charge usually does not nearly cover their costs.

It is true that, if they were bigger, their losses would be smaller per student because of efficiency of scale. However, their total losses would be bigger.

Universities cover their losses through investment income from past donations that are invested. (This is called an endowment.) If a university were to expand, their endowment would no longer cover their total losses.

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    Just a quick remark: while the original question is quite generalizable to all countries, this answer is not, because not all universities are allowed to do investment or receive donations worthy of being mentioned.
    – DCTLib
    May 4, 2021 at 7:22
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    This answer contains a lot of generalities that are simply untrue. Some universities are for-profit. Some universities, even nonprofit universities, make more money through tuition than what student cost. Some universities are not funded through endowments.
    – N.I.
    May 4, 2021 at 7:42
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    I'm not convinced that any of the for profit universities are legitimate. May 4, 2021 at 12:16
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    "If a university were to expand, their endowment would no longer cover their total losses." This is not consistent with the few universities who have rapidly growing endowments. They could incur more losses. May 4, 2021 at 12:17

Gibbs (2006, "Why assessment is changing", in Bryan and Klegg (eds.), Innovative Assessment in Higher Education, Routledge) points out that, while substantial economies of scale do exist in some aspects of higher education (knowledge-transmission lectures, library provision, ...), there are not corresponding economies of scale available in either formative or summative assessment of student work; and that as a result, when universities attempt to realize the economies of scale that do exist by increasing student-staff ratios, this leads to a decline both in the quality of formative assessment and the construct validity of summative assessment experienced by students, simultaneous with an increase in the fraction of their time that academics must spend on assessment.

I hypothesize that refereeing of research papers is sufficiently analogous to summative assessment of student work that the equivalent process is likely to happen: when universities attempt to realize economies of scale by increasing (e.g. through big collaborations with division of labour by process) the rate of production of papers per academic, this leads to a decline in the quality of refereeing, simultaneous with an increase in the fraction of their time that academics must spend on refereeing.

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    Economies of scale function in some ways. If you maintain a constant staff student ratio, and each staff member spends 50% of their time on course course requirements and 50% of optional modules, this allows the university to offer a broader range of optional modules, and thus appear more attractive to students. May 4, 2021 at 15:37
  • @IanSudbery Yes, that sounds workable. Didn't occur to me, probably because, in the discipline where I've done most of my teaching, professional-body accreditation requirements greatly limit the scope for there to be elective modules. May 4, 2021 at 19:38

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