It's a Start, Yale. Now Do Something Serious.

An academic arms race is underway, requiring lots of spending. And Harvard has the most guns, although by some measures Yale and Princeton are equally wealthy. Princeton actually tops Harvard in the all-important U.S. News & World Report rankings. And to increase applicants (a factor in the ranking computations), the school has built the ultimate student-living facility, Whitman College (after eBay chief executive Meg Whitman, the donor), that cost $388,571 per room unit, nearly identical to what Donald Trump spent on his luxury resort Ocean Club Panama, and nearly three times what my university spent per room unit on its very nice newly finished dorm. Taxpayers may ask: Why should Whitman get a multimillion dollar tax break for building a luxury hotel for the children of mostly wealthy Americans?

The Harvard and Yale moves do nothing to deal with the root causes of rising college costs, which include:

The student loan explosion. When third parties are paying a lot of the bills, universities have few incentives to conserve on resources or to reduce their costs.

Nonprofit status. As nonprofit institutions, most colleges and universities have no market incentives to reduce costs vigorously, improve quality or use new technology -- for example, having students listen to lectures on their MP3 players -- that could lower costs and improve efficiency.

No bottom line. Did Harvard have a good year in 2007? Who knows? There are few measures of the value added in attending college, making it difficult for schools to even define goals, much less achieve them.

Resource rigidities. Academic tenure is the most famous. But there are many areas in which colleges and universities can't move quickly to adapt to changing academic needs.

Exclusivity. The need for accreditation, as well as other barriers, restricts new, for-profit institutions that may be more efficient and innovative from entering the higher education field.

Public support and control. The government-funded nature of higher education leads to politicization, bigger university bureaucracies and more expensive governance.

Price discrimination. Sticker prices are high partly because colleges and universities charge different applicants different amounts; the Harvard initiative is a good example of "socking it to the rich."

Overcompensation. There is a strong correlation between government aid to schools and faculty income levels, and staff salaries are rising sharply for top people.

Cross-subsidization. Large universities often shift funds to expensive graduate and professional programs that are not self-sufficient, thus raising undergraduate tuition.

Unclear ownership. Who owns the universities? Trustees? Alums? Taxpayers? Faculty? Administration? Turf wars over control increase inefficiency and raise costs. How much time, money and energy was spent firing former Harvard president Lawrence Summers?

Unwieldy governance. Universities typically make decisions by committee, which tends to be costly, cautious and non-innovative.

The information deficit. Parents, students and policymakers lack basic information about schools: their budgets, their use of resources, student performance. This encourages bad decision-making on everyone's part. Parents and students don't always make wise financial decisions in selecting a school, and policymakers aren't well-informed on whether a college truly needs more resources.

It's clear that the new financial aid plans offered by Harvard and Yale will put even more pressure on similarly ranked schools -- both private, such as Princeton, and public, such as the University of Michigan or the University of Virginia -- to match them. Some of these schools have healthy endowments and are well-positioned to do so, while others might not be able to keep up in the financial aid arms race. But increasing financial aid alone won't deal with the fundamental problems of a costly and relatively inefficient higher education system. In the end, all Harvard and Yale have done is to make some nice, symbolic moves.

vedder@ohio.edu

Richard Vedder, director of the Center for College Affordability and Productivity, is a visiting scholar at the American Enterprise Institute and teaches economics at Ohio University.