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Public Sector Motivation and Development Failures

  • Macchiavello, Rocco

This paper provides a theoretical analysis of the relationship between public sector motivation and development. In the model the public sector produces a public good and workers are heterogeneous in terms of public sector motivation (PSM). Wages in the private sector are increasing in the quality of the public good. In this context, public sector wage premia (PSWP) have two opposite effects: low PSWP help screen workers with PSM into the public sector, while high PSWP help motivate workers to be honest. Raising PSWP may not improve the quality of governance and multiple equilibria might arise. The model highlights that the relative importance of workers selection and provision of "on the job" incentives in the public sector varies in systematic ways with wages in the private sector. I provide anecdotal and original empirical evidence consistent with the theoretical predictions and discuss some policy implications for public sector reforms in developing countries.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5906.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5906
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  1. Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
  2. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
  3. Rauch, James E. & Evans, Peter B., 2000. "Bureaucratic structure and bureaucratic performance in less developed countries," Journal of Public Economics, Elsevier, vol. 75(1), pages 49-71, January.
  4. Ghatak, Maitreesh & Nien-Huei Jiang, Neville, 2002. "A simple model of inequality, occupational choice, and development," Journal of Development Economics, Elsevier, vol. 69(1), pages 205-226, October.
  5. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
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  7. Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," DELTA Working Papers 96-12, DELTA (Ecole normale supérieure).
  8. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  9. Alberto Alesina & Stephan Danninger & Massimo Rostagno, 1999. "Redistribution Through Public Employment: The Case of Italy," NBER Working Papers 7387, National Bureau of Economic Research, Inc.
  10. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
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  12. International Monetary Fund, 1997. "Corruption and the Rate of Temptation; Do Low Wages in the Civil Service Cause Corruption?," IMF Working Papers 97/73, International Monetary Fund.
  13. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2007. "Entrepreneurial talent, occupational choice, and trickle up policies," Journal of Economic Theory, Elsevier, vol. 137(1), pages 27-48, November.
  14. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  15. Ugo Panizza, 2001. "Public Sector Wages and Bureaucratic Quality: Evidence from Latin America," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  16. Acemoglu, D. & Verdier, T., 1997. "The Choice between Market Failures and Corruption," DELTA Working Papers 97-06, DELTA (Ecole normale supérieure).
  17. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
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