Two Academic Financial Instruments
Failed School Swaps. The time is ripe to develop financial instruments that permit a more flexible management of the risk of failing schools.
Essentially, the idea would be to use school success as a third party referent for a security whose payoff would be triggered by the failure of a given school.
Lest pesky insurance regulations impose difficulties in the issuing and free trade of these securities, they should not be viewed as insurance.
They simply permit an organization (Charter School board, private school, community development organization, etc.) to spend some capital
to exchange their risk-- and permits the market to trade, in a rational way of course, these managed risk securities.
Student Failure Swaps Similarly, it is time to inaugurate a method for academic departments to manage their risk of attrition of majors and low graduation rates.
The risks and their consequences are real in terms of reduced OTPS and reduced adjunct budgets, as well as intangible but no less costly loss
of prestige and "good graces in the administration".
The idea would be that a high-FTE department (A) that wishes to hedge against the loss of adjunct funds resulting from the future
attrition of majors could use adjunct funds to purchase "student failure swaps" from a department (B) that is currently needy of adjunct funds.
Should a particular level of attrition result, B would then have to provide A with a market-determined quantity of adjunct funds.
Student failure swaps would be created for each student, and based on their prior academic record and various demographic information,
a complete actuarial risk analysis can be made. To limit the risk, student failure swaps could bundled, combining A students with C
students with D students. Furthermore, although these securities are labeled "student failure swaps", they can be used to hedge
risk of changes in the interest of incoming students. Naturally, these academic securities could be traded among departments
and even administrative offices.
I am fully confident that applying the modern principles of high finance to academic finance and budget will
reduce risk and smooth out the ups and downs associated with the vicissitudes of student failure rates and major-popularity.