Hi peterquill,
You made some good points: money is not everything. Fit (and many other factors) does play a role. The question is: among potential many factors, which factor is the most important one? Also, by how much relative to other factors. I think it is quite logical to hypothesize that money is the most important factor; after all, we are talking about a job.
Now, let me disagree with you on a few things with some numbers (evidence) backing up my argument. I have heard many people, including you, arguing that most schools implement the so-called “anti-incest” policy. The argument does not make economic sense. When we hire a new faculty (I have served on numerous search committees for new faculty members), we are dealing with a high degree of information asymmetry. This information asymmetry is much lower when the candidates are our own doctoral students because we have observed them for about 5 years already. Since you used the field of economics for some of your arguments, so I now use some numbers from this field. I went on UC Berkelry, Stanford, and MIT’s economics department websites and counted the number of their economics faculty members’ doctoral affiliations. I focus on there three programs because their faculty sizes are very similar, around 50. Also, they are all very fine programs enabling cleaner comparison. The following are the results; the numbers of faculty members are in parentheses. For UC Berkeley: Harvard (9), Yale (2), Princeton (3), Stanford (6), MIT (9), Berkeley (3), others (15). For Stanford: Harvard (10), Yale (2), Princeton (1), Stanford (10), MIT (10), Berkeley (2), others (8). For MIT: Harvard (13), Yale (0), Princeton (3), Stanford (5), MIT (13), Berkeley (0), others (6).
As you can see, Berkeley hires 3 of their own. Stanford hires 10 of their own. MIT hires 13 of their own. These numbers are at odd with the notion of anti-incest. Now, let me refine what I want to say. I do not say anti-incest is not a factor, but it is a relative minor factor relative to information asymmetry. The argument of anti-incest is over-stated. By the same token, I believe that fit and other factors are relative minor factors as well. At the end of day, money is likely to be the most important factor in recruitment and retention.
From above, the dominance of Harvard and MIT Ph.D. across these three universities is quite evident. You can also see that Berkeley has a higher percentage of their faculty members having their Ph.D. from non-HYPSM universities. I do not want to overly generalize the implications of the final observation; it may relate to how much Berkeley is able to pay. I leave that to readers.