Saturday, October 30, 2010

Incentives in universities

Nick Rowe has a great post on the woes of the central planner in university settings.

You should definitely read the whole thing, but here's my favorite bit:

"It's not enough (in some cases) to put the carrot in front of the donkey. You have to point to the carrot, tell the donkey it is a carrot, and that he can eat it. And work out marginal revenue and marginal cost for the donkey too. And repeat this several times".

One interesting take on university incentives comes from the school where Mrs. Angus and I worked in Mexico City, CIDE.

Everyone started with the same (fairly low) base salary and the requirement to teach one class. There were then extra payments for teaching more classes (subject to demand). There were also payments based on one's overall academic reputation from SNI which came in three levels if you qualified. They also paid piecework on articles. A payment for each working paper and then an additional payment for publication on a scale related to the quality of the journal. Finally there were semi-annual productivity bonuses that could be as large as two months base salary.

I found this to be a great system. We got a ton of work done there.

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