Working Paper: CEPR ID: DP6744
Authors: Irina Khovanskaya; Konstantin Sonin; Maria Yudkevich
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 Codes: C73; I20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state-approved financing (H74) | underinvestment in high-quality faculty (D29) |
| budget structures (H61) | hiring quality (M51) |
| increase in budget (H61) | shift in priorities from research to teaching (A29) |
| shift in priorities from research to teaching (A29) | lower quality faculty hired (D29) |
| financing linked to student numbers (I22) | hiring low-quality, short-term staff (J63) |