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Budget Uncertainty and Faculty Contracts: A Dynamic Framework for Comparative Analysis

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  • Irina Khovanskaya

    (Higher School of Economics)

  • Konstantin Sonin

    ()
    (New Economic School (NES))

  • Maria Yudkevich

    (Higher School of Economics)

Abstract

We study hiring decisions made by competing universities in a dynamic framework, focusing on the structure of university finance. Universities with annual state-approved financing underinvest in high-quality faculty, while universities that receive a significant part of their annual income from returns on endowments hire fewer but better faculty and provide long-term contracts. If university financing is linked to the number of students, there is additional pressure to hire low-quality short-term staff. An increase in the university’s budget might force the university to switch its priorities from ‘research’ to ‘teaching’ in equilibrium. We employ our model to discuss the necessity for state-financed endowments, and investigate the political economics of competition between universities, path-dependence in the development of the university system, and higher-education reform in emerging market economies.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0112.

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Length: 28 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0112

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  1. Siow, Aloysius, 1998. "Tenure and Other Unusual Personnel Practices in Academia," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 14(1), pages 152-73, April.
  2. Sergei Guriev & Dmitriy Kvasov, 2005. "Contracting on Time," American Economic Review, American Economic Association, vol. 95(5), pages 1369-1385, December.
  3. Siow, Aloysius, 1984. "Occupational Choice under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 631-45, May.
  4. Scott E. Masten, 2006. "Authority and Commitment: Why Universities, Like Legislatures, Are Not Organized as Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 649-684, 09.
  5. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 8(2), pages 230-50, April.
  6. Philip G. Altbach, 2007. "Peripheries and Centres: Research Universities in Developing Countries," Higher Education Management and Policy, OECD Publishing, vol. 19(2), pages 1-24.
  7. Pencavel, J., 2000. "The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94," Papers, United Nations World Employment Programme- 99-019, United Nations World Employment Programme-.
  8. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
  9. Michael Alexeev & Clifford Gaddy & Jim Leitzel, 1992. "Economics in the Former Soviet Union," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 137-148, Spring.
  10. Laura Romero & Elena del Rey, 2004. "Competition Between Public And Private Universities: Quality, Prices And Exams," Economics Working Papers we046423, Universidad Carlos III, Departamento de Economía.
  11. Michael S. McPherson & Morton Owen Schapiro, 1999. "Tenure Issues in Higher Education," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 85-98, Winter.
  12. VANHAECHT, Eve & PAUWELS, Wilfried, 2005. "University competition: Symmetric or asymmetric quality choices?," Working Papers 2005021, University of Antwerp, Faculty of Applied Economics.
  13. Ramey, Garey & Watson, Joel, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 873-911, August.
  14. De Fraja, Gianni & Iossa, Elisabetta, 2002. "Competition among Universities and the Emergence of the Elite Institution," Bulletin of Economic Research, Wiley Blackwell, vol. 54(3), pages 275-93, July.
  15. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(3), pages 453-72, June.
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