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Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard

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Title: Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard
Language: English
Authors: Myers, Gordon M.
Source: Canadian Journal of Higher Education. 2019 49(3):13-23.
Availability: Canadian Society for the Study of Higher Education. P.O. Box 34091, RPO Fort Richmond, Winnipeg, MB R3T 5T5, Canada. Tel: 204-474-6404; Fax: 204-474-7561; e-mail: csshe@cc.umanitoba.ca; Web site: http://journals.sfu.ca/cjhe/index.php/cjhe/index
Peer Reviewed: Y
Page Count: 11
Publication Date: 2019
Document Type: Journal Articles
Reports - Descriptive
Education Level: Higher Education
Postsecondary Education
Descriptors: College Administration, Budgeting, Administrative Organization, College Faculty, Incentives, Income, Responsibility, Risk, Moral Issues, Foreign Countries
Geographic Terms: Canada
ISSN: 0316-1218
Abstract: Universities face inherent informational asymmetries. These make university budgeting prone to various challenges including moral hazard. The last forty years has seen some large research- intensive universities move from centralized incremental budgeting to decentralized Responsibility Center Budgeting (RCB). It is assumed that a faculty chooses a level of costly effort in generating revenue for the university. The level of faculty effort is not observable by the central administration. When there is no revenue uncertainty or when the faculty is not risk averse, pure RCB is best from the perspective of the administration. The intuition is that pure RCB fully aligns financial responsibility with academic authority, that is, it makes the faculty the residual claimant. Once the faculty is risk averse, partial RCB is optimal. Partial RCB provides a balance between providing the right incentives to the faculty and the university reducing the revenue risk faced by the faculty.
Abstractor: As Provided
Entry Date: 2019
Accession Number: EJ1237413
Database: ERIC
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  Data: Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard
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  Data: Canadian Society for the Study of Higher Education. P.O. Box 34091, RPO Fort Richmond, Winnipeg, MB R3T 5T5, Canada. Tel: 204-474-6404; Fax: 204-474-7561; e-mail: csshe@cc.umanitoba.ca; Web site: http://journals.sfu.ca/cjhe/index.php/cjhe/index
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  Data: <searchLink fieldCode="EL" term="%22Higher+Education%22">Higher Education</searchLink><br /><searchLink fieldCode="EL" term="%22Postsecondary+Education%22">Postsecondary Education</searchLink>
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  Data: Universities face inherent informational asymmetries. These make university budgeting prone to various challenges including moral hazard. The last forty years has seen some large research- intensive universities move from centralized incremental budgeting to decentralized Responsibility Center Budgeting (RCB). It is assumed that a faculty chooses a level of costly effort in generating revenue for the university. The level of faculty effort is not observable by the central administration. When there is no revenue uncertainty or when the faculty is not risk averse, pure RCB is best from the perspective of the administration. The intuition is that pure RCB fully aligns financial responsibility with academic authority, that is, it makes the faculty the residual claimant. Once the faculty is risk averse, partial RCB is optimal. Partial RCB provides a balance between providing the right incentives to the faculty and the university reducing the revenue risk faced by the faculty.
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      Pagination:
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        StartPage: 13
    Subjects:
      – SubjectFull: College Administration
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      – SubjectFull: Budgeting
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      – SubjectFull: Administrative Organization
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      – SubjectFull: College Faculty
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      – SubjectFull: Incentives
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      – SubjectFull: Income
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      – SubjectFull: Responsibility
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      – SubjectFull: Risk
        Type: general
      – SubjectFull: Moral Issues
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      – SubjectFull: Foreign Countries
        Type: general
      – SubjectFull: Canada
        Type: general
    Titles:
      – TitleFull: Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard
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