The paper compares the productive efficiency of public and private enterprises in an adverse selection model with managerial effort. Under either ownership structure, the firm's manager has private information on his ability. The principal can invest in monitoring to elicit this ability. As a benchmark, we show that the manager's equilibrium effort in absence of monitoring is strictly higher in a public firm where the principal is a benevolent government. These results may be reversed when both principals have access to a monitoring technology. We show that, under the optimal monitoring and contracting decisions, the public principal may refrain from audits, while the private principal monitors. In this case, managerial effort and thus productive efficiency can be higher in a private firm. Conversely, in situations where both principals endogenously monitor, effort and welfare levels under either governance structure coincide.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number
608.
Length: pages Date of creation: Dec 1999 Date of revision: Handle: RePEc:bon:bonsfa:608
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=517
For technical questions regarding this item, or to correct its listing, contact: (Daniel Park).
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out