Perverse Incentive: Why Universities Love Constructing New Buildings

Perverse Incentive: Why Universities Love Constructing New Buildings

Mike White brought to our attention this thought-provoking Nature Comment by Paula Stephan that argued how increased government funding damages science. We have been very familiar with most of the points mentioned there, they may come as a surprise to you. So, we would recommend you to read the entire article available here.

The following part surprised us !

Universities are also driven by incentives. By hiring faculty members on soft money, with grants providing the salary, the institutions bear almost none of the risks. Furthermore, universities prefer to put up a new building or invest millions in remodelling existing lab space rather than house scientists in older buildings that they already own. Why? One reason is that debt can be an accounting asset. A US government accounting rule called A21 means that the more debt universities have from construction, the more they can add to grants for overhead costs. If a university borrows $100 million to build a new facility and pays 4% interest, it can increase its indirect rate by including the $4-million interest payment in the calculation. The building binge is further fuelled by competition among universities: recruiting senior faculty members requires space, and lots of it.

Really? There is a tax-clause to fuel real estate borrowing?

You will also enjoy Mike White’s post titled -

The paradox of more science funding, less research weve seen this before

Written by M. //