Modelling the effects of exposure to risk on junior faculty productivity incentives under the academic tenure system

Abstract

This paper relies on modelling tools from probability theory and the economics of risk to analyze the ex-ante incentive properties of tenure from the perspective of junior faculty members. The theoretical results show that under publication value uncertainty and risk aversion, a junior faculty member publishes at a point where the expected value of publication exceeds the marginal cost of publication. In addition, under decreasing absolute risk aversion (DARA), increasing a junior faculty member's base salary reduces the implicit cost of private risk bearing thereby stimulating scientific productivity. However, increasing levels of uncertainty in the value of publication reduces faculty research incentives. These results have important implications for academic departments as they seek to enact effective policies to achieve and maintain their accreditation and reputation goals through maximum faculty productivity.