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80-20 rule: Vilfredo Pareto 1896, economist: for many events, roughly 80% of the
effects come from 20% of the causes
We can always come up with exceptions
- With limited time, focus on the first-order issues
- We can learn from thinking through exceptions, but to have large impact, focus
your limited decision-making authority and resources on the big issues
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This is the norm for human decisionmaking
- Good heuristics help us get it right more often than not
- And we adapt
Economic thinking is one set of very powerful heuristics
- E.g., approx assess B and C, even if some of them not quantifiable
- Tells us where to look for more info, what risks of failure we need to manage for
- Provides a principled framework
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Supply: WHAT are we providing? WHAT are the sources of value we create?
Demand: WHO values what we provide? HOW much? WHAT are they willing to pay?
NB: Thinking about these questions at this level prepares you for conversations with
provost and with donors
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Critical: people provide us with resources because we provide value.
What do we provide that has value?
How much does it cost to provide it? (MORE OR LESS than the resources people are
willing to give us to provide it?)
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E.g. access, reference, instruction, learning space, information tools
You may have a different view for your library – e.g., book museum, collecting for its
own sake.
- That’s ok! But know your mission – what you are providing. That’s your source of
value.
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Labor is single biggest expense for most large university libraries.
Materials tends to be bigger for liberal arts colleges and smaller private universities
Other less than 20% for almost all research libraries
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[AFTER 2 BULLETS]
If funding not rising at least 3.5-4% / year your (purchasing power) budget is declining
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Now demand:
WHO is going to provide us with resources?
WHY?
HOW MUCH?
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As mission priority generally don’t want to tie funding (directly) to individual value
[CLICK]
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Social and future value often harder to assess, harder to tie funding to
[CLICK}
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Students
Faculty
Campus administrators
Public users
Prospective donors (alumni, others)
Foundations and gov’t agencies – usually specific projects, which may or may not
support core activity
Society at large (state and local elected officials)
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[AFTER 2 BULLETS]
QQQ: First, how?
- per access? (movie theater)
- permanent unlimited access? (Barnes & Noble)
- time-bound unlimited access? (NYT subscription)
QQQ: Then should we? Why not?
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Let’s try a harder question. [CLICK TWICE]
QQQ
Careful: cost of providing usage rights service!
Do we care just about library “profit”, or social welfare?
Once cost of reproduction paid (if any) society is best off if information is shared
freely [CLICK FOR EXPLANATION]
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[NB: AFTER 2nd NET BENEFIT ARROW]
Since net benefit increasing in usage, want to max usage
BUT raising price reduces access
– social welfare max requires open access!
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Useful for decisions within the library when you have discretion
for negotiations with provost when you need higher authority
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Rivalrous: bagel
Excludable: bagel store vs. fishing in public waters
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Private – public – common – club
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Print: private at an instant – clubbish when shared over time (but still: wear, tear, loss
and congestion)
Digital: technically club (licenses may make them private)
Reference: private
Instructional: clubbish up to a point (then private) – but online asynch modules?
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Example: campus wifi
Example: book checkout!
Why?
-- many services have mix of characteristics – may value public aspects more than
private and not want to suppress usage
-- transaction costs!
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First, central decides how much to provide, then….
Most common method for academic library campus funding
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Example: consortial cost sharing (UC Tier 1 journal licenses)
Example: UCOP campus assessment (for funding systemwide public goods)
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Example: Alternative for journal cost sharing
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Examples:
- printing, photocopying
- overdue fines
- room rentals
- digitization service
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Includes:
Library, central IT, facilities, police, etc., etc.
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Scaling: funding for public goods should adjust in some predictable and consistent
way that correlates with the drivers of the need for those services.
- e.g., enrollment growth
From FY2007 to FY2016, campus total operating expenditures increased 55%. During
that same period,
- Library operating expenditures have increased 10%,
- IS&T operating expenditures have increased 22%,
- Facilities Services operating expenditures have increased 22%.
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Efficiency: Presents decision makers with full cost of new initiatives
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Legitimacy: (transparency and accountability)
- full public goods expenditure annually published in simple way
- key financial stakeholders directly see the share of the public goods spend due to
their activity
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Simplicity: standardized, systematic, data-informed approach to determine total
public goods funding and its allocation
- collapses multiple different revenue-sharing charges into a single charge (tax rate)
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Direct charge: need good metric for usage – very difficult for many services
- especially collections for Library: future access is key
Pricing:
- transactions costs
- many services hard to define service unit
- for most services contrary to university mission to suppress demand
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So far have talked about money as if it were just money
But isn’t money from different sources different?
Restrictions can matter (eg endowment for 16th century French poetry)
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[CLICK FIRST]
Ex: Gift to provide student employment support
- can reduce campus funds for student employment and use them for collections
Corollary: Do all-funds budgeting
- focus strategic decision making on best allocation of total resources
- then figure out how to move the money around
- sometimes you’ll hit a corner solution…but rarely
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[TWO CLICKS FIRST]
If managing a significant budget (e.g., UL), take an intro class in managerial or
financial accounting (Lynda.com etc.)
Balance: pile of coin, sitting in bank, at given instant – spend it, it’s gone
Income: flow of coin: how the balance is changing over time
One-time: finite amount with end date (may be more than one period)
Recurring: “permanent”, open-ended
IMPLICATIONS:
- one-time is “cheaper” – e.g., in negotiations, can offer “more” one-time (prof’l
development funds, program startup funds)
- ”we pay for X out of reserves” if X is recurring is BAD – either it’s running out and
you don’t have a plan, or you’re actually paying from flow but not showing it as part
of your budget so don’t make good trade-off decisions
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Ex: UCB has been paying for “unpredictable” maintenance “out of reserves” … but
the amount is pretty predictable, and it’s recurring
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In industries in which labor productivity (viz., output per hour) increases relatively
slowly, production cost will rise faster than rest of economy
- wages have to keep up, but rising productivity elsewhere slows cost growth
Suppose in auto mfg, last decade, wages rose 10%, but output per worker increased
by 10% because of better robots
- wages up, but cost of making car hasn’t changed
Arts: Beethoven’s string quartet op. 131, C# minor, took 4 performers when he wrote
it in 1826. Today: takes 4 performers. But wages have risen enormously, so the cost
of a performance has risen enormously.
Teaching: a class size of 25 took 1 teacher in 1910, takes 1 teacher today
Libraries: Has original cataloging gotten much faster? Ordering books? Teaching
instructional section? Shelving books?
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Monopoly power
- but isn’t monopoly 1 seller?
Without copyright – have nothing
With all that power, why not double prices? Why only 5% / year?
- power has limits
- some would reduce subscriptions, walk away
- they are balancing getting more from those who stay with losing from those who
leave
How can they do this year after year?
- we can adapt slowly to some rate of increase
- convince provosts to give us more (raise tuition faster than regular inflation)
- slowly starve the monograph budget
- slowly reduce other services
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Sounds right: if access if free, cost of journals is $0 and no more inflation problem?
BUT: Still costs to publish, so must recover costs somehow
- and if publishing is still monopolized, will still cost too much
What will break their monopoly power?
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Pay for cost of servers, software, metadata
On *top* of cost of journals as long as researchers want peer review, prestige title
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We’ve been creating new non-profit, open access journals for 3 decades – how much
dent?
[CLICK]
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Red line tells the story: share of all but big 5 crashing
The big 5 have moved from publishing 10-20% of articles to over 50% in both STEM
and SSH
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Not the UK approach: Funding agencies mandated OA and agreed to pay APCs
- researchers wanted to publish in same journals so they had the same power
- so just raised the APCs faster than inflation
Need a way to let authors publish where they want, but decrease publisher market
power
Skin in the game – UC approach
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Coordination costs are real, and tend to rise in the square of the number of
participants
Don’t all have the same interests, so aligning interests gets more costly as # increases
ALSO: antitrust law
EXAMPLES:
- UC journal cost sharing
- UC journal negotiations
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Some economics of academic libraries

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Some economics of academic libraries