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

Irina Khovanskaya, Konstantin Sonin () and Maria Yudkevich

No 6744, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: dynamic game; economics of education; tenure (search for similar items in EconPapers)
JEL-codes: C73 I20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu, nep-gth and nep-sog
Date: 2008-03
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Journal Article: Budget Uncertainty and Faculty Contracts: A Dynamic Framework for Comparative Analysis (2008)
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