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The leading private universities in the United States commonly maintain large financial reserves conventionally referred to as endowments. Harvard and Yale, for example, had endowments in 1988 of $4.2 billion and $2.1 billion, respectively. Although these two institutions are among the best endowed in the nation, there are hundreds of others that also have substantial endowments. (Table 1 gives a sample of their size and distribution.) These endowments are now so familiar that their purpose is seldom questioned. Yet, if we consider the matter closely, it is not obvious why they are accumulated.

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