by Donna Martinez
Former Senior Writer and Editor, John Locke Foundation
What is the impact of a university campus to its local community? UNC-Asheville has calculated a number by releasing an economic impact study that puts its annual impact on the Asheville region at $450 million. But JLF’s Roy Cordato explains that UNC-Asheville’s study fails to recognize half the story.
The fatal flaw within the study is that all university spending uses resources in the local economy that, under normal economic conditions, would be used elsewhere if it were not being diverted because of increased demand generated by the spending. These alternative uses also would have had their own impacts on employment, income, and additional output as a result of direct, indirect, and induced effects, which are the opportunity costs of the UNCA spending. These costs relate to economic activities that do not occur because they are pre-empted by UNCA’s expenditures. This is the nature of all opportunity costs—they are unseen but nonetheless real and therefore part of the economic impact. Unfortunately, they are never accounted for in the study. This is typical of studies using the IMPLAN model. A truly meaningful economic impact study would estimate these forgone opportunity costs and subtract them from the directly observable effects.
This doesn’t mean the university has no value. It simply means that sound economics requires a look at what is seen and what is unseen. Roy explains more and offers a better guide.
Policymakers would make better decisions if they scrapped economic impact studies and relied instead on the type of cost-benefit analysis that private businesses use when making their investments, Cordato said.