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Excessive Public Employment and Rent-Seeking Traps

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  • Esteban Jaimovich
  • Juan Pablo Rud

Abstract

We propose an occupational choice model in which the quality of the state bureaucracy influences aggregate output and the level of entrepreneurial activity through its participation in the labour market. Skilled agents differ in terms of their public service motivation: if agents with low public mission become bureaucrats, they will use their position to rent seek, by employing an excessive number of unskilled workers. This generates an upwards pressure on wages, which lowers profits and deters entrepreneurship. A better equilibrium results when public service motivated agents self-select into the state bureaucracy, since they exert high effort and employ a limited number of workers. The model also shows that the working class might optimally choose to vote for an inefficient public sector. We provide evidence supporting the mechanism in our model by confronting some of its main predictions to a variety of data sources.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 118.

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Length: 47 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:cca:wpaper:118

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Keywords: Occupational Choice; Public Service Motivation; Political Economy;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  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. Sebastian Kessing & Chiara Strozzi, 2012. "The Regional Distribution of Public Employment: Theory and Evidence," Department of Economics 0682, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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