Institutional change and the optimal size of universities

The last years have been characterized by tremendous institutional change in the university sector induced by far-reaching Higher Education Reforms (e.g. Bologna). Building on loose-coupling theory, we hypothesize that smaller universities were better able to adapt to the Higher Education Reforms of the recent years, triggering a decline in the optimal size of universities in the reform period. Using a 12-year panel data set on the inputs and outputs of German universities, we find a tremendous decrease in optimal university size, which is driven by the decline in the optimal scale for the provision of teaching activities. Our results also suggest this drop is also due to fact that the relatively higher administrative overheads of larger universities become an organizational liability in times of rapid institutional change.