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Collective Punishments: Incentives and Examinations in Organisations

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  • Banerjee Priyodorshi

    () (Indian Statistical Institute)

Abstract

The paper investigates the impact of examinations on incentives and decision-making in bureaucracies and similar organisations. When one amongst a group of bureaucrats can be appointed to give policy advice whose outcome affects all parties, with advisory ability increasing in personal effort, a free-riding problem is generated if preferences are aligned, leading to an ex ante inefficiency. Free-riding may be mitigated by an examination with a pass-mark, i.e., a minimum ability requirement as a necessary criterion for advisory appointment. By collectively punishing all experts when maximal ability is low, it raises private incentive to enhance ability, and improves decision quality.

Suggested Citation

  • Banerjee Priyodorshi, 2007. "Collective Punishments: Incentives and Examinations in Organisations," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-36, September.
  • Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:34
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