Contracts, Job Security and Development of the University

The research success of a university requires efficient recruiting. The talents of candidates are unobservable for administrators, and so they delegate hiring to the faculty who have better knowledge of the job market. Since professors dislike putting their own employment at risk, faculty, especially less productive, have an incentive to hire less productive candidates to insure against getting fired themselves. I argue that both tenure and strict long-term administrative positions mitigate this problem, and allow one to hire better candidates