Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
European governments increasingly employ competitive university funding to improve performance in higher education. The framework that is developed in this paper suggests a donor-specific trade-off between fostering best performing universities and increasing university efficiency when introducing competitive funding in the university sector. We test this assertion based on a university-level panel dataset across eight European countries from 1994–2006. Estimating a simultaneous two-stage Stochastic Frontier Approach, we find that international public funds decrease the productivity of the best performing universities, which suggests a non-negligible effect because of the administrative burden induced by competitive funding. However, the competition for international public funds also disciplines universities as evidenced by a positive impact on efficiency. Conversely, tuition fees enhance the productivity of the best performing universities but increase the spread of universities with lower productivity, which suggests a strong sorting effect.