Economics of Education Review 18 1999 51–58
Managerial tenure under private and government ownership: the case of higher education
Franklin G. Mixon Jr
a,
, Russell W. McKenzie
b
a
Department of Economics and International Business, University of Southern Mississippi, Box 5072, USM Station, Hattiesburg, MS 39406-5072, USA
b
Department of Economics, Oklahoma State University, Stillwater, OK 74078, USA
Abstract
The present paper offers statistical evidence which suggests that managers of firms in the higher education industry in the United States universities and colleges pursue a variety of goals consistent with economic theory in the context
of firm ownership, and that the tenure of managers universitycollege Presidents in this industry differs according to the firm’s organizational structure public vs. private. The essentially non-transferable property rights regarding
government-owned firms reduce incentives to police and detect managerial inefficiencies. Managers, therefore, face incentives to create internal decision-making processes which increase job security and tenure, along with other non-
pecuniary sources of income and utility. Empirical results presented here point out that, ceteris paribus, the average tenure of public university presidents is about five years longer than their private counterparts, as a result of the disparity
in incentive structures. [JEL D23, I21, I22, L33]
1998 Elsevier Science Ltd. All rights reserved.
1. Introduction
In 1991, economist Ronald H. Coase was recognized for his seminal work on the role of firms in the market
process among other ideas with the Nobel Prize in economic science. Coase pointed out that by forming
such an organization a firm and allowing some auth- ority an entrepreneurowner to direct the resources, cer-
tain costs associated with the market process i.e., trans- actions costs are saved. A firm, therefore, consists of a
system of relationships
which comes into existence when the direction of resources is dependent on an entrepren-
eur Coase, 1937. Coase’s work is important because it was the first to deal with individual incentives within
firms, and resulting firm behavior. Coase dealt explicitly with how firm size affects these relationships and thus
Corresponding author. Tel.: 601-266-5083; Fax: 601-266- 4920; E-mail: mixoncba.usm.edu
0272-775798 - see front matter
1998 Elsevier Science Ltd. All rights reserved. PII: S 0 2 7 2 - 7 7 5 7 9 7 0 0 0 6 3 - 0
firm behavior, and his work forms the basis for studies regarding ownership structures and the performance of
the firm. Since the seminal work of Coase more than 50 years ago, economists have continued to supplement his
early theoretical insights with theoretical extensions, theoretical caveats, and empirical work. One of the most
interesting extensions has been the theoretical and empirical work of economists such as DeAlessi
DeAlessi, 1967, 1969, 1974a, b and Crain and Zard- koohi 1978, who analyze the differences in firm
behavior across different organizational structures. They point out that the costs of transferring ownership shares
differ among private firms, regulated firms, and political public firms. The non-transferable property rights
inherent in public ownership reduce attempts to police and detect managerial behavior, leading to many con-
cerns of inefficiency within political firms. With statisti- cal data from electric utilities, water and other industries,
these economists show a marked difference consistent with microeconomic theory between the level of
52 F.G. Mixon Jr, R.W. McKenzie Economics of Education Review 18 1999 51–58
efficiency and the behavior of a firm’s manager executive leadership across an array of ownership
structures. The present paper offers an extension to the literature
in this area. We offer statistical evidence which suggests that managers of firms in the higher education industry
in the United States universities and colleges pursue a variety of goals consistent with economic theory in the
context of firm ownership, and that the tenure of man- agers universitycollege Presidents in this industry dif-
fers according to the firm’s organizational structure. Our results add to and update the body of empirical work in
this field of industrial organization.
2. The hypothesis
