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When faculty are risk-averse, partial RCB balances incentives and revenue risk.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/responsibility-center-budgeting-as-a-mechanism-to-deal-with-academic-moral-hazard/596816/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/responsibility-center-budgeting-as-a-mechanism-to-deal-with-academic-moral-hazard/596816.png","ImageObject",300,407,{"name":42,"@type":43},"Danger Angel","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-11-02","2026-10-15",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",7,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69],{"name":60,"@type":61,"acceptedAnswer":62},"What core problem makes university budgeting prone to moral hazard?","Question",{"text":63,"@type":64},"Informational asymmetries mean faculty effort is hidden from central administration, enabling hidden action that central budgeting cannot fully verify.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How does Responsibility Center Budgeting (RCB) address this moral hazard?",{"text":68,"@type":64},"RCB decentralizes financial responsibility by tying funding to revenue-generation effort, aligning incentives when effort is difficult to monitor centrally.",{"name":70,"@type":61,"acceptedAnswer":71},"When is pure RCB preferred versus partial RCB?",{"text":72,"@type":64},"Pure RCB is best when there is no revenue uncertainty or when faculty are not risk-averse. Partial RCB becomes optimal when faculty are risk-averse, as it balances incentives with faculty revenue risk.","https://schema.org",{"og:url":32,"og:type":75,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":77,"canonical":32},"index,follow",{"doc_id":79,"site_id":7},596816,1792209380,{"code":4,"msg":82,"data":83},"success",[84,88,92,96,101,106,110,114,119,122,126],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":85,"show_sort_weight":86,"slug":87},"Story & Novel",90,"story-novel",{"id":26,"doc_module":4,"doc_module_name":25,"category_name":89,"show_sort_weight":90,"slug":91},"Literature",80,"literature",{"id":33,"doc_module":4,"doc_module_name":25,"category_name":93,"show_sort_weight":94,"slug":95},"Exam",70,"exam",{"id":97,"doc_module":4,"doc_module_name":25,"category_name":98,"show_sort_weight":99,"slug":100},5,"Comic",60,"comic",{"id":102,"doc_module":4,"doc_module_name":25,"category_name":103,"show_sort_weight":104,"slug":105},6,"Technology",50,"technology",{"id":55,"doc_module":4,"doc_module_name":25,"category_name":107,"show_sort_weight":108,"slug":109},"Healthcare",40,"healthcare",{"id":111,"doc_module":4,"doc_module_name":25,"category_name":29,"show_sort_weight":112,"slug":113},8,30,"research-report",{"id":115,"doc_module":4,"doc_module_name":25,"category_name":116,"show_sort_weight":117,"slug":118},9,"Religion & Spirituality",20,"religion-spirituality",{"id":117,"doc_module":4,"doc_module_name":25,"category_name":120,"show_sort_weight":117,"slug":121},"World Cup","world-cup",{"id":123,"doc_module":4,"doc_module_name":25,"category_name":124,"show_sort_weight":123,"slug":125},10,"Lifestyle","lifestyle",{"id":127,"doc_module":4,"doc_module_name":25,"category_name":128,"show_sort_weight":97,"slug":129},19,"General","general",{"code":4,"msg":82,"data":131},{"doc_id":79,"user_id":132,"nickname":42,"user_avatar":133,"doc_module":4,"category_id":111,"category_name":29,"doc_title":10,"doc_description":12,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":55,"is_deleted":4,"is_public":22,"is_downloadable":22,"audit_status":22,"page_count":139,"language":140,"language_code":8,"site_id":7,"html_lang":8,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":12,"update_tm":144,"read_time":145,"preview_page_count":4},962090769052,"https://ap-avatar.wpscdn.com/davatar_9964176cb1d06d4a9deccf72a44ae3dc","Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard  \nAbstract  \nUniversities face inherent informational asymmetries. These make university budgeting prone to various challenges including moral hazard. The last forty years has seen some large research-intensive universities move from centralized incremental budgeting to decentralized Responsibility Center Budgeting (RCB) . It is assumed that a faculty chooses a level of costly effort in generating revenue for the university. The level of faculty effort is not observable by the central administration. When there is no revenue uncertainty or when the faculty is not risk averse, pure RCB is best from the perspective of the administration. The intuition is that pure RCB fully aligns financial responsibility with academic authority, that is, it makes the faculty the residual claimant. Once the faculty is risk averse, partial RCB is optimal. Partial RCB provides a balance between providing the right incentives to the faculty and the university reducing the revenue risk faced by the faculty.  \nKeywords: university governance, Responsibility Center Budgeting (RCB), mechanism design, moral hazard  \nRésumé  \nLes universités sont confrontées à des asymétries d’information importantes. Celles-ci rendent la budgétisation des universitéssujette à plusieurs défis, notamment le risque moral. Au cours des quarante dernières années, certaines grandes universités à forte intensité de recherche sont passées d’une budgétisation incrémentale centralisée à une budgétisation décentralisée par centres de responsabilité (BCR) . On suppose que pour générer des revenus pour l’université, une faculté universitaire choisit un niveau d’effort qui lui est coûteux mais qui n’est pas observable par l’administration centrale. En l’absence d’incertitude par rapport aux revenus, ou lorsque les facultés ne sont pas réticentes au risque, la BCR pure est préférable du point de vue de l’administration centrale. L’intuition est qu’une BCR pure aligne complètement la responsabilité financière avec l’autorité universitaire, et ceci parce que la faculté devient l’ayant droit résiduel. Lorsque les facultés ont une aversion au risque, la BCR partielle est optimale. La BCR partielle offre alors à une université un équilibre entre les incitations qu’elle crée et le risqueencouru par les facultés par rapport aux revenus générés.  \nMots-clés : gouvernance des universités, budgétisation décentralisée par centres de responsabilité (BCR), conception des mécanismes, risque moral  \nIntroduction  \nThe original partitioning of universities by academic discipline in the late 19th century was connected to the inability of any one person to accurately evaluate teaching and research across the breadth of the university (see Cole (2011)) . That decentralization of academic authority was not matched by a decentralization of financial responsibility. The traditional approach to university budgeting was incremental budgeting, a centralized top-down approach characterized by central control of all unrestricted reve-  \nnue. Budget discussions between the central administration (Provost, President, CFO, henceforth, the administration) and a faculty Dean (henceforth, the faculty) begin with the previous year’s budget and then move away from that with incremental adjustments for new developments such as expenditure on a new faculty position.  \nIncremental budgeting has strengths, but a difficulty with this centralized approach is that doing it well places enormous informational demands on the administration. In incremental budgeting the difference between projected revenues and costs generate an expected pool of  \nCanadian Journal of Higher Education | Revue canadienne d’enseignement supérieur 49:3 (2019)   \nresources available for incremental adjustments. Faculties make cases for resources in a system where thereis no clear downside to requesting more. As a result, the pool is oversubscribed and must be rationed am","cbCaifK5igqzwNv0","https://ap.wps.com/l/cbCaifK5igqzwNv0","pdf",315359,11,"English","# Abstract\n# Introduction","[{\"question\":\"What core problem makes university budgeting prone to moral hazard?\",\"answer\":\"Informational asymmetries mean faculty effort is hidden from central administration, enabling hidden action that central budgeting cannot fully verify.\"},{\"question\":\"How does Responsibility Center Budgeting (RCB) address this moral hazard?\",\"answer\":\"RCB decentralizes financial responsibility by tying funding to revenue-generation effort, aligning incentives when effort is difficult to monitor centrally.\"},{\"question\":\"When is pure RCB preferred versus partial RCB?\",\"answer\":\"Pure RCB is best when there is no revenue uncertainty or when faculty are not risk-averse. Partial RCB becomes optimal when faculty are risk-averse, as it balances incentives with faculty revenue risk.\"}]","Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard | PDF",1792083788,28]