Moral hazard and adverse selection in research funding: Centres of excellence in Norway and Sweden

The past two decades have seen an increase in the use of funding schemes such as ‘centres of excellence’. This paper examines how centre of excellence schemes have been adapted to two distinct national public research systems (Norway and Sweden) and the role of the schemes in the systems. It develops a conceptual framework involving three impact dimensions of the centres: organisational, social and international. Together with principal–agent theory the conceptual framework is used to investigate and explain which dimensions are given the most emphasis in the two countries. The main findings are that, in a country with a highly competitive funding system (Sweden), funding agencies emphasise organisational impact to overcome the problem of moral hazard, while a country characterised by relatively high block grant funding of the universities (Norway) tends to emphasise international impact, and invests in strategies to overcome the problem of adverse selection.