Organizations and Markets

Democracy and Credible Commitment in Universities

22 December 2010 at 9:54 am Nicolai Foss 4 comments

| Nicolai Foss |

In 2003, Denmark enacted what is the easily the least democratic university legislation in the world (the North Korean one may be less democratic). Essentially, faculty voting rights are now limited to selecting members of an “academic council” which mainly serves as a quality check on candidates for evaluation committees and as a body that offers advice to the university president and the deans. A board of directors (with a majority of external members) appoints the president, the president appoints the dean, and the dean appoints department heads.

This truly major change was partly motivated by the various inefficiencies of the earlier, much more democratic conditions. However, as autocratic systems also have well-known inefficiencies, the question is whether Denmark let the governance pendulum swing too much toward the opposite end. My colleague Henrik Lando directed my attention to a truly excellent paper by O&M guest blogger Scott Masten that is directly relevant to the understanding of this issue.

The paper is “Authority and Commitment: Why Universities, Like Legislatures, Are Not Organized as Firms.” Masten builds on political economy insights that the primary function of political organization is establishing credible commitments rather than Arrowian preference aggregation. The importance of commitments derives from surplus-increasing political bargaining potentially being subject to opportunistic renegotiation by rulers. According to this theorizing, constitutionally based democratic rules make it easier to make commitments (e.g., to respect private property) credible, for example, because they define the limits of authority in contrast to the unconstrained whims of the autocrat. (Some libertarians will wish to take issue with this argument). 

Masten applies this idea to an academic context. While he admits that democratic governance is challenged by size and heterogeneity, he also argues that such governance has distinct advantages with respect to facilitating coordination and deterring appropriation attempts from the top — and these advantages are increasing in the heterogeneity and immobility of faculty. Thus, democratic governance should be more prevalent in research universities than in, say, liberal arts colleges. Masten uses data from a 1970 survey on the allocation of decision rights in 800+ US universities and colleges to test the theory. His results show “democratic governance to be more prevalent in larger, ‘full-service’ research universities than in smaller liberal arts colleges and special-curriculum institutions. State- and church-affiliated institutions, meanwhile, tend to be governed more like firms.”  

I interpret Masten’s results as an indication that Danish legislators got it wrong back in 2003. And I strongly recommend his paper to anyone with an interest in political economy and the theory of the firm. While some work has emerged that handles the theoretical intersection of these two streams, there is very little empirical work in this area (but see this paper and  this one).

Entry filed under: - Foss -, Education, Institutions, Myths and Realities, Papers, Recommended Reading.