OPTIMAL INCENTIVES FOR INCOME-GENERATIONWITHIN UNIVERSITIES

This paper provides a framework with which to model one of the key links between universities andindustry – the undertaking of applied research. We assume that the fundamental objective of universities isto undertake fundamental research and that they receive public funding to do so. Nevertheless, faced withtight budget constraints, universities may have incentives to allow their staff to spend some of their time onincome-generating activities such as applied research or consultancy. For this opens up two channels bywhich universities can ease their budget constraint:(i) by allowing academics to supplement their income, universities will not have to pay such highsalaries;(ii) they can effectively tax the income that academics raise through applied research or consultancy –for example through the imposition “overhead charges”...