February 15, 2013
Adam Smith, perhaps the most perceptive observer of human action of his time, pointed out from experience that incentives mattered to professors. At Scottish and English universities in the 18th century, some professors were in the main paid directly by student fees, while others were paid entirely by the university, thus putting a middleman between the customers and the providers of teaching services.
In the former case, Smith wrote (in Book V of The Wealth of Nations), a professor’s reputation is important and depends “upon the affection, gratitude, and favourable report of those who have attended upon his instructions; and these favourable sentiments he is likely to gain in no way so well as by deserving them, that is, by the abilities and diligence with which he discharges every part of his duty.”
In universities where professors were paid entirely by the institution, however, their incentives were markedly different. Smith observed, “if his emoluments are to be precisely the same whether he does or does not perform some laborious duty, it is certainly his interest…either to neglect it altogether or…to perform it in as careless and slovenly manner as authority will permit.”
Would this promote grade-inflation and easy assignments? Possibly — but, of course, we have those under the current system, too.