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Working paper

Professor — University Relationships: Incentives for Investment in Joint Future

We present an incomplete contract model of relationship between University and Professor to analyze the impact of control rights distribution at University on faculty incentives to invest in human capital and University development. Secondary employment of teaching staff outside University may create positive externalities within University inducing Professors to invest in their human capital. We derive conditions under which an adverse selection problem is severe, and end up with conclusions regarding optimal employment and contract policy.