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

30 Pages Posted: 10 Jun 2008

See all articles by Irina Khovanskaya

Irina Khovanskaya

National Research University Higher School of Economics

Konstantin Sonin

University of Chicago - Harris School of Public Policy; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Maria Yudkevich

National Research University Higher School of Economics

Date Written: March 1, 2008

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

JEL Classification: C73, I20

Suggested Citation

Khovanskaya, Irina and Sonin, Konstantin and Yudkevich, Maria, Budget Uncertainty and Faculty Contracts: A Dynamic Framework for Comparative Analysis (March 1, 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1141650

Irina Khovanskaya (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Konstantin Sonin

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maria Yudkevich

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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