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Administrative Bureaus with Standard Operating Procedures

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  • Miltos Makris

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Abstract

We 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 Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/062.

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Length: 39 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:bri:cmpowp:03/062

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Keywords: bureaucracy; non profit organisations; adverse selection;

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  1. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
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  5. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
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  7. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The economics of career concerns: part 2 :application to missions and accountability of government agencies," ULB Institutional Repository 2013/9641, ULB -- Universite Libre de Bruxelles.
  8. Breton, Albert & Wintrobe, Ronald, 1975. "The Equilibrium Size of a Budget-maximizing Bureau: A Note on Niskanen's Theory of Bureaucracy," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 195-207, February.
  9. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  10. McCubbins, Mathew D & Noll, Roger G & Weingast, Barry R, 1987. "Administrative Procedures as Instruments of Political Control," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 243-77, Fall.
  11. Moe, Terry M, 1990. "Political Institutions: The Neglected Side of the Story," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 213-53.
  12. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
  13. Casas-Pardo, Jose & Puchades-Navarro, Miguel, 2001. " A Critical Comment on Niskanen's Model," Public Choice, Springer, vol. 107(1-2), pages 147-67, April.
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