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Excessive public employment and rent-seeking traps

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  • Jaimovich, Esteban
  • Rud, Juan Pablo

Abstract

We propose a model where the size of the public sector and aggregate output are interrelated through the occupational choice of agents who differ in their skill level and degree of public-mindedness. When the public sector attracts bureaucrats with low degree of public service motivation, they will use their position to rent seek by employing an excessive number of unskilled workers. This leads to an equilibrium with relatively high unskilled wages, which lowers profits and deters entrepreneurship. Conversely, an equilibrium with a lean public sector and greater private economic activity arises when public service motivated agents populate the state bureaucracy. These agents exert high effort and employ a limited number of unskilled workers. Our model also shows that a bloated public sector with high wages may be supported by the unskilled agents.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 106 (2014)
Issue (Month): C ()
Pages: 144-155

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Handle: RePEc:eee:deveco:v:106:y:2014:i:c:p:144-155

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Rent seeking; Occupational choice; Public service motivation;

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  1. Does voting for an inefficient government make sense?
    by Economic Logician in Economic Logic on 2010-01-18 15:30:00
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Cited by:
  1. Kessing, Sebastian G. & Strozzi, Chiara, 2012. "The Regional Distribution of Public Employment: Theory and Evidence," IZA Discussion Papers 6449, Institute for the Study of Labor (IZA).

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