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Public Sector Motivation And Development Failures

  • Rocco Macchiavello

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 Royal Economic Society in its series Royal Economic Society Annual Conference 2004 with number 1.

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Date of creation: 17 Sep 2004
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Handle: RePEc:ecj:ac2004:1
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  1. Stephan Danninger & Alberto Alesina & Massimo V. Rostagno, 1999. "Redistribution Through Public Employment; The Case of Italy," IMF Working Papers 99/177, International Monetary Fund.
  2. Acemoglu, Daron & Verdier, Thierry, 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," CEPR Discussion Papers 1494, C.E.P.R. Discussion Papers.
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  7. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
  8. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
  9. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  10. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  11. 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.
  12. 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.
  13. Rauch, James E & Evans, Peter B., 1999. "Bureaucratic Structure and Bureaucratic Performance in Less Developed Countries," University of California at San Diego, Economics Working Paper Series qt0sb0w38d, Department of Economics, UC San Diego.
  14. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  15. Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
  16. 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.
  17. 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.
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