Steve Levitt thinks that tenure is overrated. But relative to what? Levitt proposes doing away with tenure because it distorts the incentives of scholars to front load their productivity and then ride off into the sunset after tenure is granted. Surely he is right about this incentive effect. Levitt also makes quick work of the frequently raised defense that tenure is necessary to protect those doing politically unpopular work and adds that:
If the U of C told me that they were going to revoke my tenure, but add $15,000 to my salary, I would be happy to take that trade. I’m sure many others would as well. By dumping one unproductive, previously tenured faculty member, the University could compensate ten others with the savings.
It must not be that simple because few schools have tried, and my sense is that those that took a stab at it capitulated quickly and reinstated tenure. What am I missing?
Levitt’s post provoked a response from Greg Mankiw suggesting that the piece Levitt is missing is faith in markets:
My guess is that a more typical faculty member would place a larger monetary value on having tenure. If so, universities may well be better off by paying lower salaries to tenured faculty, despite the adverse incentive effects, than paying higher salaries to professors without tenure. In other words, Steve thinks the competitive market for professors is resulting in inefficient contracts, while I believe that, absent any reason for market failure, the labor contracts we observe are likely to be efficient. (We Harvard profs always have to remind those Chicago guys that competitive markets work pretty well.)
The last paranthetical line is pretty funny. But it is true that there is some tension in Levitt’s claim that we should believe in competitive labor markets to protect those fired for political reasons but not to produce efficient labor contracts in the first instance. Perhaps he has something in mind to reconcile these claims, but color me skeptical for the moment. While I don’t pretend to know the precise form of the optimal labor market contract in higher education, markets have a remarkable history of producing efficient contractual forms and institutions that economize on these complex and dynamic costs. The persistence of these contractual forms is probably a fairly good sign that it is efficient.
However, the enormous complexity of the tradeoffs involved in altering the dynamic incentives of scholars within a department would appear to cut both ways. And probably across institutions as well. For example, a second tier school whose hiring strategy involves a greater reliance on “gambling” on young scholars and weeding out those that underperform at the tenure stage might face vastly different incentives than a top 10 law school facing very different constraints. One can also imagine other dimensions on which the tenure considerations and optimal “lifecycle” productivity incentives for scholars might vary across departments and universities. With all this variation between and within universities why the near universal adoption of tenure despite the obvious incentive costs that Levitt identifies?
Perhaps the attacks on the tenure are a good example of the nirvana fallacy. The tenure system is not perfect. But while it distorts incentives, perhaps these effects are dominated by the costs of the alternative governance institutions and contractual forms? But are these alternative forms really that bad?
The most likely alternative candidates are delegation of more power to the Dean or other senior faculty members. Mankiw describes some of the problems with the former and Dan Solove over at Coop explores some issues with the “firing by faculty” model. But the inefficiences cannot just be a few bad decisions made for political reasons. As Levitt suggests, the market will protect those productive professors who are fired for political reasons. There are examples abound that suggest he is right. But maybe something larger is at stake. Perhaps the increased divisiveness and resources devoted to these sorts of decisions by the faculty at reduces productivity. But are those effects so large as to swamp the beneficial incentive effects of doing away with the tenure system? It is hard for me to believe this. Mostly because GMU is a place that is very conducive to and rewarding of productivity. It is tough for me to imagine a set of political issues that would actually reduce my own productivity (lots of other things: blogging, March Madness, poker … but not faculty politics). But I’ve also only been a faculty member for a few years and perhaps I am too green to understand how ugly things can get in other places.
All of this leads me to more questions than answers. Does the tenure model really reduce faculty divisiveness relative to alternatives? Does this argument imply that faculty collegiality (or at least, lack of divisiveness) really has productivity effects? Should untenured faculty members blog about tenure and effects on productivity instead of writing? Is my Dean reading this? Gotta go.