In this article, the author discusses the incentive system in German higher education. He states that the underdeveloped incentive and management mechanisms in German higher education result in mistaken allocations in the higher education system in general and in some individual institutions in particular. He believes that the only way to optimize processes or resource utilization is to adopt more elements of competition in the higher education system, through predominantly positive sanctions of services. In science, incentive systems should be nonmaterial, not just financial, that is, they should operate via improvements in working conditions. Financial inputs concentrate on financing higher education itself and paying employee salaries. Transparent, scientifically sound procedures for allocating funds to higher education can have an incentive effect. The days of watering-can funding or funding on the basis of some incidental, historically evolved "need" are over, henceforth, funding should be governed by universally agreed guidelines oriented to the compass and quality of a university's performance. [This report was translated by Stephen Naron.]