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Norms and financial incentives: A model of how to fund universities

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  • Trude Gunnes

Abstract

We derive the optimal compensation contract when two asymmetrically verifiable tasks are tied together, a cultural norm of behavior coexists with a financial incentive, and the amount of public funds is also a concern. To formulate our ideas, we restrict our attention to higher education. The model generates at least three results. First, the monetary incentive for research crowds out the social teaching norm. Second, increased intrinsic motivation in teaching induces a social multiplier effect. Third, the government underfunds the university if the university's teaching standard is lower than that of the government to implement its teaching standard.

Suggested Citation

  • Trude Gunnes, 2021. "Norms and financial incentives: A model of how to fund universities," Review of Economics and Institutions, Università di Perugia, vol. 12(1).
    • Handle: RePEc:pia:review:v:12:y:2021:i:1:n:1
    DOI: 10.5281/zenodo.5380761
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    More about this item

    Keywords

    : Principal-Agent Theory; Peer Pressure; Intrinsic Motivation; Higher Education; Public Funding;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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