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Declining university standards are less about bloated administrators or lazy faculty than bad incentives.

Enrollment and funding pressures push universities to lower admissions and grading standards.

Faculty rationally inflate grades and reduce work due to student evaluations and career incentives.

Realigning incentives, not moral appeals or denunciations, is needed to restore academic rigor.

Higher education has seen better days. The recent high-profile case of plagiarism and dishonesty by former Cambridge professor Jason Arday has become a flashpoint in a broader debate over whether universities still maintain the academic excellence they claim to value. Many on the political right argue that the left-wing ideology that elevated Arday is eroding traditional standards. Liberal critics tell a different story, blaming corporatization and a consumer model that treats students as customers. The rise of adjunct instruction and decline of tenure-track positions, they argue, have further eroded expectations and professionalism. Both sides nevertheless converge on a diagnosis: rampant grade inflation and declining academic rigor are chipping away at public trust in what a college degree actually signals.

What is often missing from this debate is the question of incentives. Charlie Munger, the longtime vice chairman of Berkshire Hathaway, was famous for insisting on their decisive power. “Show me the incentive,” he liked to say, “and I’ll show you the outcome.”

One of his favorite examples involved FedEx. Its overnight system depended on workers unloading, sorting, and reloading packages at a central hub with almost no margin for delay. Yet planes kept leaving late. Managers’ efforts to encourage teamwork barely moved productivity. The fix was simple: Pay........

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