Two years ago I had just been promoted and given tenure at the University of Colorado at Denver when I up and quit. Despite the fact that I had tenured offers from other universities I decided to accept a non-tenured offer at Oregon State (such was my desire to return to Oregon). Most of the colleagues I told about this decision would just shake their heads and smile wanly (of course most don't know Oregon). Luckily, last week I learned that this decision was not completely foolish. I have been promoted and given tenure at OSU. Whew!
But tenure is a funny thing, especially to an economist. First off, despite popular belief, tenure is not a guarantee of lifetime employment. I can be fired for many things - most things really - except the content of my research. So what tenure is, is a partial guarantee of academic freedom. (I say partial because there are many ways around that) Nonetheless, it does create frictions in the labor market and such things are usually scorned by economists. Should the market itself not value independent research so does an institution need to exist to preserve such freedom? Well, yes. As most research has huge external benefits, the private market would not necessarily reward such research and instead focus on research that can be captured by the institution. Also as moving jobs often is quite costly both for an individual and for a research program, and efficient outcome is likely not going to occur.
This system does impose monetary costs on a university but also provides benefits, however it is usually the costs that get the attention. Yes, there are many examples of professors who have been tenured who have subsequently had their research productivity fall off dramatically, or teaching suffer, and still draw a competitive salary. But tenure is also a nice thing to be able to offer workers and thus is a benefit that can be balanced by lower salary. In addition, tenure systems add considerable friction to the labor market for senior faculty so wages are not bid up as much as they might be if the market were frictionless.
And even if this is a net negative monetary effect, which is debatable, you create an atmosphere of open inquiry that has catapulted the US university system to the premiere engine of knowledge and discovery that has fueled our prosperity for the last 60 years. Not too bad, eh?
At any rate, I am just glad that it is in the bag and that I am not looking (and feeling) like a fool.