Abstract:

In Norway, higher education offered by public colleges and universities are tuition free. The institutions are mainly financed by the Ministry of Education and Research (MER), and for more than a decade the financing model has mimicked models known as ‘pay for performance’ in the human resources literature. My analysis applies concepts from principal – agent theory like incentive intensity, risk sharing and cross-subsidizing. The paper presents concepts, assumptions and the pay for performance model.

In principle, Norwegian institutions of higher education and research get 60% of their budget as base allowance from the government, while 40% is linked to performance measures for education and research. The main performance measure for education is ECTS-credits obtained by students passing courses, while the main performance measure for research is publication points (in CRISTIN).

The paper explains how financial resources trickle down from the government to institutions, faculties and departments, and finally how departments allocate hours for teaching and research to faculty members. This case study presents rules for allocation of hours to faculty members passed by the faculty board of School of Business and Law at University of Agder. Lecturers and researchers are salaried faculty members in permanent positions.

The paper illustrates the decisions about financial and hourly incentives using graphs. The first graph shows how MER in 2016 allocates almost 5000 NOK in financial bonus to the institution per undergraduate business student passing a 7,5 ETCS course. The course lecturer is the most important person for enhancing students learning and passing the exam. This faculty member gets 1 hour extra as an allocation of hours per additional student beyond 100 (costing 500 NOK). Hence, 10% of the institutional financial bonus is spent on increasing time input for feedback and grading. Large courses (up to 400 students) generate economies of scale by very low average cost per student.

Another graph illustrates that MER in 2016 allocates 35000 NOK to the institution per published article (category 1). Decisions by the institution board and faculty board transfer this full amount to the department which allocates 700 hours to the author for a single-author article. 700 hours (costing 500 NOK per hour) approximates 350000 NOK in total cost, i.e. 1000% of the institutional financial bonus for research.

The paper discusses consequences of these incentive schemes, risk to researchers, and cross-subsidizing of research at the expense of undergraduate education. The principal-agent hierarchy underpins the inquiries. Does the institution distort MERs incentives balancing education and research to promote institutional self-interest of increased research? A part answer stems from the 2018 transformation of government financing for universities and colleges in Norway.

Keywords:

Educational management, Higher education, New public management, Incentives, Balancing teaching and research.