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Does it Pay Off to Incentivize Universities? – Performance Funding in the German Higher Education System

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  • Burgard, Claudia
  • Grave, Barbara S.

Abstract

This paper analyzes the effect of the introduction of performance-related funding in the German university sector. Starting in the 1990‘s, the federal states of Germany introduced incentive-based funding systems in order to increase universities‘ performance and efficiency. We estimate the effects of this reform on four common outcome indicators of the funding models: The number of students and graduates, which are supposed to measure teaching performance, and the number of PhD graduates and the amount of third-party funds, which quantify research output. Using a difference-in-differences estimator, our results suggest that for increasing the outcomes in teaching, a weak incentive is sufficient while the research outputs are only affected if the incentive is strong enough. We further identify different responses by university types, which shows that the results are mainly driven by technical colleges. According to our findings, it is crucial to design the funding models carefully to provide the “right” incentives and hence to achieve the underlying goal of the reform.

Suggested Citation

  • Burgard, Claudia & Grave, Barbara S., 2013. "Does it Pay Off to Incentivize Universities? – Performance Funding in the German Higher Education System," Ruhr Economic Papers 457, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:457
    DOI: 10.4419/86788516
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    References listed on IDEAS

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    5. Bauer, Thomas K. & Grave, Barbara S., 2011. "Performance-related Funding of Universities: Does More Competition Lead to Grade Inflation?," IZA Discussion Papers 6073, Institute of Labor Economics (IZA).
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    8. Atkinson, Adele & Burgess, Simon & Croxson, Bronwyn & Gregg, Paul & Propper, Carol & Slater, Helen & Wilson, Deborah, 2009. "Evaluating the impact of performance-related pay for teachers in England," Labour Economics, Elsevier, vol. 16(3), pages 251-261, June.
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    10. Thomas K. Bauer & Barbara S. Grave, 2011. "Performance-related Funding of Universities – Does more Competition Lead to Grade Inflation?," Ruhr Economic Papers 0288, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. repec:zbw:rwirep:0288 is not listed on IDEAS
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    Cited by:

    1. Timo Mitze & Claudia Burgard & Bjoern Alecke, 2013. "The Effect of Tuition Fees on Student Enrollment and Location Choice: Interregional Migration, Border Effects and Gender Differences," ERSA conference papers ersa13p883, European Regional Science Association.
    2. repec:zbw:rwirep:0404 is not listed on IDEAS
    3. Björn Alecke & Claudia Burgard & Timo Mitze, 2013. "The Effect of Tuition Fees on Student Enrollment and Location Choice – Interregional Migration, Border Effects and Gender Differences," Ruhr Economic Papers 0404, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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    Keywords

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    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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