The authors test the hypothesis that universities are more productive when they are both more autonomous and face more competition. Using survey data, the authors construct indices of university autonomy and competition for both Europe and the United States. The authors show that there are strong positive correlations between these indices and multiple measures of university output.
To obtain causal evidence, the authors investigate exogenous shocks to US universities’ expenditures over three decades. These shocks arise through the political appointment process, which the authors use to generate instrumental variables. The authors find that an exogenous increase in a university’s expenditure generates more output, measured by either patents or publications, if the university is more autonomous and faces more competition.
Exploiting variation over time in the ‘stakes’ of competitions for US federal research grants, the authors also find that universities generate more output for a given expenditure when research competitions are high stakes. The authors draw lessons, arguing that European universities could benefit from a combination of greater autonomy and greater accountability. Greater accountability might come through increased reliance on competitive grants, enhanced competition for students and faculty (promoted by reforms that increase mobility), and yardstick competitions (which often take the form of assessment exercises).
Faculty
Professor of Economics
