A Model of Academic Tenure

Economics

Further details

(with Robert C. Marshall)

Tenure is a relatively uncommon employment contract. We find that two factors can explain its existence in academics -- (i) non-contractibility of output and (ii) specific, non-contractible investment by an employee that enhances the chance of high output within the profession but which also significantly diminishes the employee's outside-occupation alternatives. Severance contracts are permitted in the model but will never be offered in equilibrium by the universities. Tenure arises as the unique subgame perfect contract in the simple game in our model.