Performance Funding and Management in Higher Education: The Autonomy Paradox and Failures in Accountability

Performance funding is a specific method to manage performance by tying public funding to performance rather than to inputs identified by the organization. Since the 1980s, many countries have adopted some version of performance funding in the higher education sector as part of marketization processes and in response to increased competition, making it a major issue in higher education policy. This paper develops a theoretical framework that utilizes a network-related principal-agent framework to detect the possible origins of the failures in most versions of performance funding in higher education. The framework specifies the conditions required for effective monitoring and effort maximization. Nevertheless, we show that such conditions rarely exist in most higher education systems. Thus, performance funding creates an "autonomy paradox" that ultimately explains the failures in accountability related to performance funding. This unexpected and unwelcome outcome calls for a reexamination of this approach. We recommend expanding the collection of performance information to include inputs and capabilities and creating various mechanisms that connect specific solutions to specific problems.