Awhile back, the "Freakonomics" blog made the argument that we should get rid of tenure - http://www.freakonomics.com/blog/2007/03/03/lets-just-get-rid-of-tenure/. Not surprisingly, most people in academia didn't like that idea very much as witnessed by the comments on the blog and by this Chronicle story - http://chronicle.com/weekly/v53/i29/29b00401.htm.
As a purely economic argument, I believe that the "Freakonomics" guys get the better of the debate, but that's because the parties involved were pretty much discussing the situation as if faculty are independent, rational actors. But that's just not the case. Teaching is a joint enterprise (working together is necessary for better overall performance), and academia does have certain traditions that make people feel comfortable and supported (which also has some effect on performance), so a certain egalitarianism and deference to tradition, which tenure appears to respond to, is probably warranted.
Note, however, that I did not make an "academic freedom" argument for tenure. That rationale seems less and less compelling in an age in which even Ward Churchill is still employed at a major research university.
I should add that at a personel level, I've never been much of a fan of tenure, and I've asked on numerous occasions that I not have a contract, just a regular "personnel action form." Because I appear to be almost alone on that request, however, it's been repeatedly denied. Oh well.
Where JBU has ended up, by the way, appears to balance these questions fairly well, in my opinion. Having tenure does give institutions key "decision points" that a system of one-year evaluations (what we used to have) does not. But we've (hopefully) avoided the problems of a "strong" tenure system by having three year contracts for all long-term, full-time teaching faculty members. That structure combines the egalitarianism and respect for tradition that most faculty would want with the fairly frequent economic decision points that the economists and business types would want. Check back with us in a few years to see whether this arrangement is balancing the various needs as well as I think it will and as well as I understand to be the case at other institutions with multi-year contracts and/or "weak" tenure.