The Volokh Conspiracy - Opportunity Cost--What Harvard Could Do With $50 Million:

A good economist like Larry Summers always knows that the real cost of any expenditure is not the out-of-pocket expenditure, but the opportunity cost of what the money could otherwise be used for. In case Harvard alumni donors and tuition-paying parents were wondering what Harvard could have done with $50 million (other than, of course, save Larry Summers's neck)--one option, would be that (by my estimate) they could eliminate tuition for their entire incoming freshman class for a year and easily break even.

Andrew Samwick also does the math and concludes that the opportunity cost is that rather than hiring 8-10 distinguished chaired professors (which it otherwise could do with the same amount of money), the complementary head-count promise means that Harvard instead will hire 40 new junior untenured professors just to fill these slots. It is not clear the extent to which this will foreclose the opportunity to hire other professors who do not fit in these approved categories.

	[Todd Zywicki, July 11, 2005 at 7:23pm] Trackbacks Opportunity Cost--What Harvard Could Do With $50 Million: A good economist like Larry Summers always knows that the real cost of any expenditure is not the out-of-pocket expenditure, but the opportunity cost of what the money could otherwise be used for. In case Harvard alumni donors and tuition-paying parents were wondering what Harvard could have done with $50 million (other than, of course, save Larry Summers's neck)--one option, would be that (by my estimate) they could eliminate tuition for their entire incoming freshman class for a year and easily break even. Andrew Samwick also does the math and concludes that the opportunity cost is that rather than hiring 8-10 distinguished chaired professors (which it otherwise could do with the same amount of money), the complementary head-count promise means that Harvard instead will hire 40 new junior untenured professors just to fill these slots. It is not clear the extent to which this will foreclose the opportunity to hire other professors who do not fit in these approved categories.