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Power of Incentives with Motivated Agents in Public Organizations

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  • FLORENCE NAEGELEN
  • MICHEL MOUGEOT

Abstract

Public service motivation is often considered as an argument for low- powered incentive schemes in the public sector. In this paper, we characterize the optimal contract between a public regulator and an altruistic agent according to the degree of public service motivation, when the type of the public service consumer is privately observed. We show that the requested effort is non decreasing with and can be higher than the first best level. Moreover we show that the agent is put on a high powered contract when some customers are served but that this contract is associated with different types of consumers according to : In contrast, the agent is never put on a cost-plus contract. Finally, we show that the first best allocation can be achieved under budget balance for a degree of altruism higher than a threshold that we characterize.

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 13 (2011)
Issue (Month): 3 (06)
Pages: 391-416

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Handle: RePEc:bla:jpbect:v:13:y:2011:i:3:p:391-416

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References

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  1. Billy Jack, 2001. "Purchasing Health Care Services from Providers with Unknown Altruism," Working Papers gueconwpa~03-03-13, Georgetown University, Department of Economics.
  2. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
  3. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  4. Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
  6. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
  7. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June.
  8. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  9. Edward P. Lazear, 2000. "The Power of Incentives," American Economic Review, American Economic Association, vol. 90(2), pages 410-414, May.
  10. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  11. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
  12. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  13. Paul A. Grout & Margaret Stevens, 2003. "The Assessment: Financing and Managing Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 215-234, Summer.
  14. Le Grand, Julian, 2003. "Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawns and Queens," OUP Catalogue, Oxford University Press, number 9780199266999, September.
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Cited by:
  1. Jean-Marie Lozachmeur & Pierre Boyer, 2013. "Welfare programs and motivation bias of social workers," 2013 Meeting Papers 617, Society for Economic Dynamics.

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