Teaching versus Research: the role of Internal Financing Rules in Multi-Department Universities

In this paper, we combine the multi-department structure which characterises universities with the multitasking nature of the academic’s incentive problem. We show by mean of an example that a conglomerate structure in the university may actually be instrumental in inducing high efforts from the academic in its two basic activities. Accordingly, depending on the shape of its preference, the university may implement various combinations of teaching and research outputs by altering the incentive package it offers to academics