Ana Pinto Borges () (Faculdade de Economia, Universidade do Porto) João Correia-da-Silva () (CEF.UP and Faculdade de Economia, Universidade do Porto) Didier Laussel () (GREQAM, Université de la Méditerranée)
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We determine the optimal contract for the regulation of a bureaucratic firm in the case in which the bureaucratic bias is firm's private information. We find that output is distorted upward when the bureaucratic bias is low, downward when it is high, and equals a reference output when it is intermediate (in this case, the participation constraint is binding). We also determine an endogenous reference output (equal to the expected output, which depends on the reference output), and find that the response of output to cost is null in the short-run (in which the reference output is fixed) whenever the managers' types are in the intermediate range and negative in the long-run (after the adjustment of the reference output to equal expected output).
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number
337.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
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