Contract arrangements in the Nordic countries - solving the efficiency/effectiveness dilemma?

Steering higher education through the establishment of a "contract" between the state and the individual higher education institution is becoming an increasingly popular way of regulating the relationship between the two actors in the Nordic countries. This article addresses some theoretical foundations for this approach derived from principal/agent theory and analyzes the strengths and weaknesses of established contract arrangements in Finland, Sweden, and Denmark. The article discusses the potential of using such arrangements in relation to the efficiency/effectiveness dilemma. It is emphasized that trust is vital in solving this dilemma and that the balance between the need for public accountability, the efficient regulation of higher education, and institutional change must be given high priority in refining existing contractual arrangements.