A discussion is presented of the process of resource allocation and the use of performance indicators in public sector higher education in Britain. First, background is presented on the method of providing resources to institutions of advanced further education (AFE) and non-advanced further education (NAFE) on the basis of pooled recurrent expenditures and the distribution of funds according to categories of work and student-staff ratios. Next, the operation of the student-staff ratio is explained, and the tendencies arising from established rules regarding ratios are highlighted. This section outlines the inherent conflict in the system of assigning resources on the basis of student-staff ratios, indicating that successful performance for a college administration committed to constraining public expenditure would be to enroll as many students as possible, teach them for as few hours as possible in large classes, and make instructors teach the maximum number of hours permitted by their conditions of service. Alternatively, the self-interest of administrators and faculty would dictate the enrollment of as many students as possible in courses at as high an academic level as possible, and to teach students for the most hours in the smallest classes possible. The discussion of resource allocation is then placed in the context of the traditional management control model and an alternative model based on political negotiation and control. Finally, the limitations of an all-embracing performance criteria in higher education are articulated. (HB)