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

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Author Info
Irina Khovanskaya (Higher School of Economics)
Konstantin Sonin () (New Economic School (NES))
Maria Yudkevich (Higher School of Economics)

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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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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
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Handle: RePEc:cfr:cefirw:w0112

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  3. Ramey, Garey & Watson, Joel, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 873-911, August.
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  4. Vanhaecht E. & Pauwels W., 2005. "University competition: Symmetric or asymmetric quality choices?," Working Papers 2005021, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
  6. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June. [Downloadable!] (restricted)
  7. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-50, April. [Downloadable!] (restricted)
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  8. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October. [Downloadable!] (restricted)
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  9. Smith Freeman, 1977. "Wage Trends as Performance Displays Productive Potential: A Model and Application to Academic Early Retirement," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 419-443, Autumn. [Downloadable!] (restricted)
  10. Siow, Aloysius, 1998. "Tenure and Other Unusual Personnel Practices in Academia," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(1), pages 152-73, April.
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