Norms and financial incentives: A model of how to fund universities

Trude Gunnes

Review of Economics and Institutions, 2021, vol. 12, issue 1

Abstract: We derive the optimal compensation contract when two asymmetrically verifiable tasks are tied together, a cultural norm of behavior coexists with a financial incentive, and the amount of public funds is also a concern. To formulate our ideas, we restrict our attention to higher education. The model generates at least three results. First, the monetary incentive for research crowds out the social teaching norm. Second, increased intrinsic motivation in teaching induces a social multiplier effect. Third, the government underfunds the university if the university's teaching standard is lower than that of the government to implement its teaching standard.

Keywords: : Principal-Agent Theory; Peer Pressure; Intrinsic Motivation; Higher Education; Public Funding (search for similar items in EconPapers)
JEL-codes: D82 I23 I28 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:pia:review:v:12:y:2021:i:1:n:1

DOI: 10.5281/zenodo.5380761

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