Funding Mechanisms for Higher Education: Financing for Stability, Efficiency, and Responsiveness. World Bank Discussion Papers.

This discussion paper examines mechanisms through which governments allocate resources to higher education, particularly in developing countries, in order to establish effective means to transfer these subsidies to institutions. The discussion of funding mechanisms develops within the context of three major types of government restrictions which have had an impact on institutional behavior: (1) controlling student enrollments; (2) imposing high financial dependency on universities through prohibiting revenue diversification; and (3) imposing restrictions on the extent to which institutions are able to allocate their funding as they see fit. These restrictions have resulted in institutional deterioration. The challenge is to find a way to grant universities more autonomy over decision making while ensuring accountability to the providers of the funding. One solution is seen in the use of buffer funding bodies that lie between the government and the institutions. Another solution is to change the criteria for allocation of resources. The paper goes on to review the experience with different categories of funding criteria. The paper also looks at Chile's approach which has been to transfer funds via students through loans or grants rather than directly to institutions. Included are numerous tables and 38 references. (JB)