Lifelong Employment Commitments in Academia

Lifelong employment commitments are a relatively uncommon employment contract. We …nd that three factors can explain their existence in academia – (i) non-contractibility of output, (ii) discipline-speci…c investment by a faculty member that enhances the chance of high output within the profession but that also signi…cantly diminishes the faculty member’s outside-occupation alternatives and (iii) imperfect competition for a faculty member’s services within the specialty. Severance contracts are permitted in the model but will never be o¤ered in equilibrium by universities. Lifelong employment commitments arise as the unique subgame perfect contract. Acknowledgments. We thank Jordan Kurland of the AAUP as well as William Kovacic, General Counsel of the Federal Trade Commision, for helpful discussions. Professor Chatterjee thanks the American Philosophical Society for a sabbatical fellowship that provided …nancial support for this work and Churchill College, Cambridge for hosting him as an Overseas Fellow during the sabbatical period. We also thank the audiences at the various seminars where this paper has been presented for useful comments.