The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory

Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.