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An Incentive-Compatibility Approach to the Problem of Monitoring a Bureau

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  • Claar, Victor V

Abstract

An incentive-compatibility framework for regulating a monopolist with unknown costs is applied to the sponsor’s problem of monitoring a bureau. Following Mueller (1989), the bureau does not make take-it-or-leave-it budget proposals to the sponsor. Rather, the bureau must announce a marginal cost per unit of output to the sponsor. Given that report, the sponsor chooses a price that it will pay to the bureau for each unit of output, and the sponsor chooses the level of output as well. The analysis reveals the price per unit of output that the sponsor must pay to the bureau to maximize social welfare.

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File URL: http://mpra.ub.uni-muenchen.de/14240/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14240.

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Date of creation: 1997
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Publication status: Published in Public Finance Review 6.26(1998): pp. 599-610
Handle: RePEc:pra:mprapa:14240

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Related research

Keywords: Bureaucracy; Administrative Processes in Public Organizations; Corruption; Asymmetric and Private Information; Incentive Compatibility; Monitoring;

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References

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  1. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
  2. Dasgupta, Partha S & Hammond, Peter J & Maskin, Eric S, 1979. "The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 185-216, April.
  3. 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.
  4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  5. Wyckoff, Paul Gary, 1990. " The Simple Analytics of Slack-Maximizing Bureaucracy," Public Choice, Springer, vol. 67(1), pages 35-47, October.
  6. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  7. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  8. Chan, Kenneth S. & Mestelman, Stuart, 1988. "Institutions, efficiency and the strategic behaviour of sponsors and bureaus," Journal of Public Economics, Elsevier, vol. 37(1), pages 91-102, October.
  9. Prusa, Thomas J., 1990. "An incentive compatible approach to the transfer pricing problem," Journal of International Economics, Elsevier, vol. 28(1-2), pages 155-172, February.
  10. Moene, Karl O., 1986. "Types of bureaucratic interaction," Journal of Public Economics, Elsevier, vol. 29(3), pages 333-345, April.
  11. Gary Miller, 1977. "Bureaucratic compliance as a game on the unit square," Public Choice, Springer, vol. 29(1), pages 37-51, March.
  12. Gresik, T.A. & Nelson, D.R., 1991. "Incentive Compatible Regulation of a Foreign-Owned Subsidiary," Papers 5-91-3, Pennsylvania State - Department of Economics.
  13. Carlsen, Fredrik & Haugen, Kjetil, 1994. " Markov Perfect Equilibrium in Multi-period Games between Sponsor and Bureau," Public Choice, Springer, vol. 79(3-4), pages 257-80, June.
  14. Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
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Cited by:
  1. Robert M McNab, 2004. "Base Realignment and Closure: Guiding Principles for Peru," Public Economics 0411001, EconWPA.

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