University Funding Formulas - An Analysis of the Québec Reforms and Incentives

Oct 15, 2026

This paper analyzes incentive effects of university funding formulas driven primarily by enrolment. Using a simple game-theoretical framework, it shows that strategic responses tend to increase enrolment. When funding values vary by enrolment type, formulas can also induce substitution toward more profitable enrolment categories. If public appropriations do not track the formula-implied outcomes, dynamic inconsistency arises and per-student funding may decline. The study applies these mechanisms to Québec’s 2018 reform and models redistributive impacts.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages27

Reading Time1 h 8 min

AccessFree to download

Introduction

Enrolment-based funding and strategic behaviour

Dynamic inconsistency in funding per student

Québec 2018 reform and substitution effects

Simulation approach and redistributive impacts

University Funding Formulas: An Analysis of the Québec Reforms and Incentives Pier-André Bouchard St-Amant École nationaled’administration publique Alexis-Nicolas Brabant École nationaled’administration publique Éric Germain HEC Montréal Abstract This paper analyzes the incentives induced by a formula to fund universities based primarily on enrolment. Using a simple game theoretical framework, we argue that the strategic behaviour induced by those formulas is to favour enrollment. We further argue that if the funding value differs by enrolment type, it introduces incentives to substitute enrolment where most profitable. If the public appropriations do not follow the outcomes induced by the formula, the incentives introduce a dynamic inconsistency, and funding per student can decline. We use these results to discuss the 2018 funding formula changes in Québec. We argue that Québec’s latest reform should reduce substitution effects and increase graduate enrolment. We provide simulations of the reform’s redistributive effects and show that some universities gain structural advantages over others. Whilst the reform, on a short-term basis, deploys a mechanism to mitigate these advantages, on a long-term basis the effect introduces a larger gap between Québec higher-education institutions. Keywords: university funding, reforms, simulation, induced effects, post-secondary education, game theory Résumé Nous analysons les incitatifs induits par une formule de financement des universités qui est basée principalement sur l’effectif équivalent temps plein. Nous employons la théorie des jeux et argumentons que les comportements stratégiques induits par la formule augmentent les inscriptions. Nous argumentons également que s’il existe plusieurs familles de financement, financées à différentes valeurs, il y aura alors des incitatifs à substituer les inscriptions vers des familles plus profitables. Lorsque les crédits budgétaires ne suivent pas les comportements induits par la formule, une inconsistance dynamique apparaît, entraînant une réduction du financement par étudiant. Ces résultats sont discutés à la lumière de la réforme québécoise de la formule de financement des universités de 2018. Cette réforme devrait réduire les effets de substitution entre les programmeset induire une augmentation des inscriptions dans les programmes de deuxième et troisième cycles. Nous simulons également comment la nouvelle formule redistribue les fonds entre les universités et montrons comment certaines ont des avantages structurels. Bien que des mécanismes transitoires atténuent ces effets à court terme, nous montrons leur effet permanent à long terme. Mots-clés : financement des universités, réformes, simulation, éducation supérieure, théorie des jeux Introduction Post-secondary education (PSE) is publicly funded inmost industrialised countries. According to the Organisation for Economic Co-operation and Development’s dataset (2017), member countries fund on average 69% of their higher-level academic institutions. For instance, Canadian public funding averages 49% whilst the United States, with more private institutions, averages 35% . Since public universities are largely subsidised, the rules and procedures used by public authorities to transfer the funds are crucial. These rules and procedures are often called a University Funding Formula. The effects these formulas cause in institutions (Umbricht, Fernandez, & Ortagus, 2017) are important. If a formula is primarily based on enroled students, universities may change their behaviours to increase the total number of enroled students. In a general sense, a funding formula can alter certain behaviours, increase output with limited resources, Canadian Journal of Higher Education | Revue canadienne d’enseignement supérieur 50:1 (2020) and can be used to improve higher education through better access and efficiency (Jongbloed, 2010) . This paper focuses on the effects of enrolmen

FAQs

How do enrolment-based funding formulas affect university behaviour?

They incentivize universities to increase the total number of enrolled students, since enrolment is tied to the funding level.

What happens when funding values differ across enrolment types?

Different values across enrolment families can create incentives to substitute enrolment toward the categories that are most profitable under the formula.

Why can funding per student decline in this framework?

When public appropriations fail to follow the formula outcomes, the system becomes dynamically inconsistent, which can reduce funding per student in real terms.

Oct 15, 2026

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