Imagine a highly-selective liberal arts college. Say it’s in the Top 25 in the U.S. News and World Report Rankings for Liberal Arts Colleges, but not in the Top 10. Like Hamilton. Or Colgate. Or Washington and Lee. The kinds of schools that have a few thousand students, endowments in the $500 million range, solid campus facilities, and first-rate liberal arts faculties. Good enough to be top-flight liberal arts colleges, but also clearly not as well-regarded as the top liberal arts colleges (Williams, Amherst, etc.), or even close to the reputation and resources of the top undergraduate universities (Yale, Harvard, Princeton, etc.).

Now imagine a single alum was going to give this liberal arts college $5 billion, no strings attached.

Three questions:

1) What would be the most effective use of the money, if the goal is to improve the school (“improve” being used in the traditional sense — some combination of getting better students to choose the school, increasing the economic value of a degree from the school after graduation, and some amorphous academic quality, like making better people and/or improving the world)? That is, if you were going to devise a master plan for its long-term expenditure, what would the broad outline look like? Or, to put it another way, if you were the alum making the donation and wanted to put some general guidelines/restrictions on its use, what would you say?

2) Could that kind of money, properly maximized in its use, easily take a #18 ranked liberal arts college and catapult it to #1? How long would it take?

3) If the answer to question #2 is yes, would it also be possible to make said liberal arts college nationally competitive wit the elite universities? In effect, could you buy your way to being Princeton for $5 billion?

I ask these questions, in part, because I’m honestly interested in the answers to them. But I’m also interested in what makes a great school, and whether that can be had in exchange for money. My sense is that some large proportion (say 70%, I’m just tossing out a number) of what makes a university measurably great at the output point is pre-determined  at the input moment. That is, Yale and Harvard graduates tend to make more money or get more prestigious jobs than Hamilton or Colgate graduates mostly because the students that enroll at Harvard and Yale are smarter or more creative or more entrepreneurial or have better connection prior to ever setting foot in Cambridge or New Haven, as opposed to because of anything they  learn at Harvard or Yale. Some further percentage is a synergistic/coordination effect; the 5000 undergraduates at Yale get a benefit from being around each other — things like competition, peer learning, high expectations, great work ethics — because they are all great inputs. But again, that has very little to do with being at Yale. Put those 5000 kids in a community college together and they’ll be helpful to each other. Finally, there is the distinct effect that Harvard or Yale will have on students: the incredible faculty, the massive resources, the high expectations, and the encouragement the shoot for the moon. These things are clearly independent effects. But my guess is that they are a small component of the measurably output difference.

So I guess my first point is something like this: if you could just get the Princeton class of 2015 to all enroll at Colgate instead, you’d be really moving along towards your goal. But how do you purchase that result? Well, one option would be take a good chunk of the $5 billion and abolish tuition at our liberal arts college. Tuition runs about $40k annually at Hamilton or Colgate, so you’d be talking about $80 million a year in lost revenue at Hamilton or $110 million at Colgate. That seems eminently doable on a $5 billion endowment (one wonders if Princeton — the only school with an endowment/student ratio that would even make it remotely feasible — has ever considered this, even flippantly). And I would have to assume the results would be instantly incredible. I don’t think in year 1 of such a policy you would draw significant kids away from the top of the Ivy League, but presumably you would steal hundreds of kids who would have gone to Bowdoin or Pomona or Davidson or Amherst or Williams. And at some point you get a self-fulfilling prophecy: the measurably inputs get better (high school grades, SAT scores, etc.), and thus the measurable outputs get better, and the selectivity goes up, and then all of a sudden you have a better school.

But do you? From the individual’s perspective, it’s hard to tell. As noted above, being surrounded by great students is almost certainly an independent variable correlated with improved measurable outputs, like lifetime earnings, but that’s it right? The school itself hasn’t gotten any better, in the independent sense of the resources or curriculum or faculty. I suppose there will be some meta-effects going on here, in which an unchanged faculty starts raising its standards in response to the better students, but that might be outweighed in the form of lower grades and/or class rank for our individual under examination, who, after all, has not changed as an input. So I guess the point is that it might be the case that while the students who went to the school have gotten better, the marginal value of going to the school has not. (Of course, there are reputational effects. Due to the irrationality and/or incomplete information of the market, my 2000 degree from Hamilton will undoubtedly increase in economic value if the school magically became better (in the economic value sense) than Yale in 2015, despite the fact that I had not taken a class there in 15 years.)

But, of course, we still have a lot of money left over. How about buying a better faculty? This is seemingly tougher, for a number of reasons. We can certainly triple the faculty salaries (Hamilton has about 350 faculty, half of them full-time appointments), that wouldn’t cost more than $30-$40 million annually. And we can give each of them an annual $50,000 research budget. Not a problem. And we could probably even hire 100 new full-time faculty. Those things will attract a lot of top-notch faculty members.  But we will still be left with two problems: first, the existing tenured faculty are not going anywhere. And while the senior faculty at Hamilton is an amazing array of talent, they still don’t compare to the senior faculty at the top universities in the country as researchers. And that raises the second problem: can we really attract the best faculty in the world and still remain a credible liberal arts college, committed to great classroom teaching? How many senior faculty at Yale couldn’t teach their way out of a paper bag, even if they had the desire to get out of said bag? A lot!

And with that dilemma lies an insight: if the most important explanation for the increased measurable outputs has nothing to do with the school itself, but instead lies with the inputs, then aren’t the faculty at the powerhouse research universities simply lucky relative to the liberal arts colleges that the best students in the country have coordinated to go to their schools. What if all the best students went to liberal arts colleges? Would it really become the case that amazing classroom teachers were associated with higher lifetime earnings than dynamite research faculty? It might! (of course, one must always think of Princeton (and Dartmouth, I suppose) in these cases, because it seems in many ways to be the hybrid answer here).

So where do we stand? Leaving aside now free tuition and money-ing up the faculty, what else should we do? I’m not sure. Obviously, upgrading the physical infrastructure of the school would be a good use of funds. I would think you’d probably want to build an incredible library, and beef up your resources in both the hard and soft sciences.  Beyond that, it’s not clear to me that you’d want to do much else. I wouldn’t touch the athletic department (I don’t think), nor would I necessarily improve the dorms, apartments, or fraternity houses.

I also think there’s a non-zero chance that the plans laid out above would backfire, that a massive money infusion wouldn’t help a school nearly as much as it would tear apart the underlying fabric of the institution. But on balance I think it would help.

Anyway, thought experiment still in progress. Thoughts greatly welcomed.