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

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  • Sonin, Konstantin
  • Khovanskaya, Irina
  • Yudkevich, Maria

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.

Suggested Citation

  • Sonin, Konstantin & Khovanskaya, Irina & Yudkevich, Maria, 2008. "Budget Uncertainty and Faculty Contracts: A Dynamic Framework for Comparative Analysis," CEPR Discussion Papers 6744, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6744
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    More about this item

    Keywords

    Dynamic game; Economics of education; Tenure;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • I20 - Health, Education, and Welfare - - Education - - - General

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