Covet Thy Neighbor or “Reverse Policy Diffusion”? State Adoption of Performance Funding 2.0

Performance funding has become an increasingly prevalent state policy to incentivize student retention and degree completion at public colleges. Using a Cox proportional hazards model on state-level data from years 2000 to 2013, this study analyzes the latest wave of policies that embed base appropriations into the state budget to fund student outcomes. Results indicate that having a greater proportion of bordering performance funding states diminishes the likelihood of policy adoption, capturing a “reverse policy diffusion” effect. States with Republican-controlled legislatures, more professionalized legislatures, and rapid growth in unemployment rates are more likely to adopt the policy, while those with higher educational attainment levels and more bachelor’s degrees awarded per student are less likely. Implications include the surprising finding of reverse policy diffusion, which suggests that states are delaying adoption until after they can observe the political consequences and impacts of the policy in neighboring states. Findings point to a policy learning effect—by observing other state’s experiences, policymakers can make more informed decisions about whether to pursue performance funding as an accountability tool.