Decision Making Mechanisms at University

Abstract

The decision making mechanism at university is one of important factors affecting university's performance. Universities exhibit a wide range of governance mechanisms. In contrast with for-profit firms rank-and-file employees in universities take part in decision making and collegial bodies play an important role. We look for appropriate mechanisms in the case when clear criteria for effectiveness are missing and at the same time one can rely on professors' knowledge. We study the situation when the university's founder has to delegate decision making power and choose among several types of governance. The first type of governance is sharing governance; in this case the decision is made on the basis of majority voting. The second type is autocratic governance without rotation. The third type is autocratic governance with rotation, and finally we have governance when the decisions are made by a committee. If the founder cannot assess the preferences of professors and choose professors with specific characteristics, sharing governance gives the best results. This happens since the interests of all professors are taken into account which in turn decreases the moral hazard. The second best chose is to delegate the decision to a committee. Autocratic governance with or without rotations leads to weak performance. In this paper we obtain additional justification for implementation of sharing governance in universities.