How Much Does Tenure Cost?

One interesting response I've seen from a lot of people is that tenure is a non-pecuniary reward that enables us to keep the cost of teaching lower.  That's one way to think about it.  But I think of it not in terms of annual salary, but as an accounting cost.  And in accounting terms, hiring someone on a five year contract at $80,000 is much less expensive than hiring them on a forty year contract at $65,000.  One is a liability of perhaps $350,000; the other, of millions.

Is that a ridiculous way to think about it? After all, you'll have to hire another professor at the end of the contract.  But you may have to anyway, if, say, their area of specialty won't attract the top students.  You also lose the very valuable option to downsize if you run into financial trouble.  Fixed payments are what turn cash flow problems into catastrophes. Option value and opportunity costs really matter.

Naturally, these are not options that tenured professors admire, but whether or not you like them, getting rid of them is still costly.

Imagine I offered you one cell phone contract for two years at $100 a year, and another for 50 years at $90 + inflation.  Would you really consider the second contract "cheaper"?  I'm sure your cell company would love it, but you can probably recognize that the inability to shop around is unlikely to work in your favor long-term, as will the sudden discovery in year 10 that you need a feature your carrier can't provide, and have to get a new cell phone on top of the existing one.