Teaching versus research: a multi-tasking approach to multi-department universities

The budget of a university essentially depends on the number of students it enrols. In multi-department universities resources created in one department may be redistributed to other departments. This redistribution affects the way academics share their working time between research and teaching activities. Redistribution creates free-riding on teaching efforts. In this paper, we show that by designing internal financial rules which create yardstick competition for research funds, a multi-department university may induce better teaching quality and research, as compared to the performance of independent departments.