A theory of tenure‐track contracts

Abstract

This paper offers an explanation of the use of tenure-track contracts in academia. It argues that, because the results of academic research cannot be sold, a professor's profitability depends on the market value of the instruction he or she provides. But because that value depends directly on the extent of his or her observable research accomplishments, a profit-maximizing university will dismiss a professor who fails to initially establish a strong research record, but will tolerate a professor who fails to augment a record that is already strong.

The Efficiency of Tenure Contracts in Academic Employment

“…This paper significantly extends the analysis in Cater, Lew, and Smith (), who examine a related but much simpler model that abstracts from all questions related to effort, incentives, knowledge decay, and heterogeneity in ability, research output, and compensation. That paper offers only a limited solution to Question 1 that holds only under very strict and unrealistic conditions, and it provides no answers to Questions 2, 3, and 4.…”