Performance-based funding as an instrument of competition in German higher education

A central theme of approaches to new public management is the emulation of the market through state-induced competition. Basing state funding allocations on comparative performance is one way of setting an incentive for competitive practice amongst universities. Reforms in funding allocation have occurred in Germany at both state and university level. These have concentrated on indicator-based models, and an analysis of these procedures is the focus of this article. In general, it can be concluded that indicator-based models are used extensively at state and university level and that their general structure suggests a 'tool box' of indicators, commonly used at both levels. In many cases, performance-based funding only determines a marginal part of total budget allocations and discretionary, incremental funding dominates. Besides being a question of allocation model construction, this has both to do with the continuing need to improve institutions' capability to compete with one another and - directly connected to this - the reluctance by many German states to complete the transition to 'steering at a distance'. The article concludes with an outlook for the future of models of performance-based funding in Germany.