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The Efficiency of Tenure Contracts in Academic Employment

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Journal of Public Economic Theory

Published online on


Academic research is a public good whose production is supported by the tuition‐paying students that a faculty's research accomplishments attract. A professor's spot contribution to the university's revenues thus depends not on her spot research production, but rather on her entire cumulative research record. We show that, under a broad range of education market conditions, a profit‐maximizing university will apply a “high” minimum retention standard to the production of a junior professor who has no record of past research, but a “zero” retention standard to the spot production of a more senior professor whose background includes accomplishments sufficient to have cleared the “high” probationary hurdle. But if and when those education market conditions change, tenure‐based contracts may cease to be optimal.