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Allocative Efficiency and an Incentive Scheme for Research

  • A Bhattacharya
  • H Newhouse

In this paper we examine whether an incentive scheme for improving research can have adverse effect on research itself. This work is mainly motivated by the Research Assessment Exercise (RAE) and the Research Excellence Framework (REF) in UK. In a game theoretic framework we show that a scheme like RAE/REF can actually result in deterioration of the over-all research in a country though it may create a few isolated centres of excellence. The central assumption behind this result is that high ability researchers produce positive externalities to their colleagues. We assume these externalities have declining marginal benefit as the number of high ability researchers in a department increases. Because of this declining marginal benefit an incentive scheme like the RAE or REF may lead to over concentration of the high ability researchers in a few departments.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 10/02.

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Date of creation: Jan 2010
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Handle: RePEc:yor:yorken:10/02
Contact details of provider: Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Web page: http://www.york.ac.uk/economics/
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  1. E. Han Kim & Adair Morse & Luigi Zingales, 2006. "Are Elite Universities Losing Their Competitive Edge?," NBER Working Papers 12245, National Bureau of Economic Research, Inc.
  2. Paul Hare, 2003. "The UK's Research Assessment Exercise - Its Impact on Institutions, Departments, Individuals," Working Papers E03, Department of Economics, School of Management and Languages, Heriot Watt University.
  3. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, vol. 96(3), pages 652-668, June.
  4. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  5. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  6. Manfredi M. A. La Manna, 2008. "Assessing The Assessment Or, The Rae And The Optimal Organization Of University Research," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(5), pages 637-653, November.
  7. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  8. Adair Morse, 2006. "Are elite universities losing their competitive edge?," Proceedings, Federal Reserve Bank of Cleveland.
  9. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
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