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Power of Incentives with Motivated Agents in Public Organizations

  • FLORENCE NAEGELEN
  • MICHEL MOUGEOT

Public service motivation is often considered as an argument for low- powered incentive schemes in the public sector. In this paper, we characterize the optimal contract between a public regulator and an altruistic agent according to the degree of public service motivation, when the type of the public service consumer is privately observed. We show that the requested effort is non decreasing with and can be higher than the first best level. Moreover we show that the agent is put on a high powered contract when some customers are served but that this contract is associated with different types of consumers according to : In contrast, the agent is never put on a cost-plus contract. Finally, we show that the first best allocation can be achieved under budget balance for a degree of altruism higher than a threshold that we characterize.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 13 (2011)
Issue (Month): 3 (06)
Pages: 391-416

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Handle: RePEc:bla:jpbect:v:13:y:2011:i:3:p:391-416
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  1. Edward P. Lazear, 2000. "The Power of Incentives," American Economic Review, American Economic Association, vol. 90(2), pages 410-414, May.
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  8. Billy Jack, 2001. "Purchasing Health Care Services from Providers with Unknown Altruism," Working Papers gueconwpa~03-03-13, Georgetown University, Department of Economics.
  9. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  10. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
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