Administrative Bureaus with Standard Operating Procedures
AbstractWe investigate the terms of exchange between the legislative branch of the government and an administrative bureau with standard operating procedures. An administrative bureau is a not-for-profit public organisation responsible for the production of a non-marketable good. Such a bureau is tax-financed and the budget appropriations can be linked directly to a verifiable measure of the agency's performance. Also, the tax-financed transfer must not be less than the monetary cost of running the public agency. When standard operating procedures are central to the workings of the bureau, the agency is unencumbered by moral hazard. Yet, such agency is likely to have superior information over its production technology relative to the legislature. In such an information environment, we focus on how the legislature could minimise its welfare losses. Our results come in striking contrast to those in the literature on bureaucracies and to the received adverse selection findings. In a setting where the agency can be either of two cost-types, the principal finds it optimal in most cases to distort the production performance of the beureau regardless of its cost-type. Also the distortions are not of the same direction.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/062.
Length: 39 pages
Date of creation: Jan 2003
Date of revision:
bureaucracy; non profit organisations; adverse selection;
Find related papers by JEL classification:
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-03 (All new papers)
- NEP-CDM-2003-11-03 (Collective Decision-Making)
- NEP-MFD-2003-11-03 (Microfinance)
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