- Effects on enrolment, teaching quality and completion: Performance-based funding may encourage universities to focus on increasing in student enrolment, speeding up graduation rates and reducing dropouts. On the other hand, a focus on numbers may hurt smaller institutions, and come at the cost of teaching educational quality.
- Effects on research: Performance-based funding may incentivise the dissemination of research results and encourage cooperation with business. On the other hand, it may incur the “Matthew effect,” i.e. rewarding institutions with an already-high output while ignoring those with a smaller research capacity or a different focus.
- Effects on university governance: Performance contracts between ministries and universities may prove a powerful governance tool, aligning policy and implementation. However, this tight link might impinge on institutional autonomy, and lead to a dangerous homogenization of higher education institutions.
- Effects on funding allocation and financial management: Performance-based funding, by virtue of being transparent, allows universities to better allocate and prioritise resources. However, when public budgets are pre-fixed, further efforts past a certain threshold are discouraged. Moreover, cooperation with other institutions may be discouraged.
Building on these lessons, the report provides six recommendations:
- Ensuring the transparency of the funding system to create a level playing field for the beneficiary institutions.
- Keeping the share of performance-based funding limited to render funding less volatile.
- Taking account of the costs of universities’ activities to foster financial sustainability.
- Catering to the needs of different institutional profiles to avoid the uniformisation of the system
- Accounting for the differences among disciplines to counterbalance the deficiencies of the bibliometric system
- Strengthening quality assurance to prevent a decrease in teaching and research quality.
