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On the Role of Managerial Labor Markets in Transition Economies

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  • Gerard Roland
  • Khalid Sekkat

    (Economic Research Forum & University of Brussels)

Abstract

The aim of the paper is to investigate possible improvement of public sector efficiency through its competition with a private sector for managerial services. We set up a dynamic adverse selection model with heterogeneity of managerial quality to show that if managerial careers are available only in the state sector, the government acts as a monopsonist, having a 'holdup power' on managers. The introduction of a private sector, to the extent that it enhances career opportunities for public sector managers, gives the latter an outside option. By making this outside option available to managers, the government can make credible its commitment to stick to optimal incentive plans, thereby allowing efficiency to increase in the public sector itself.

Suggested Citation

  • Gerard Roland & Khalid Sekkat, 1996. "On the Role of Managerial Labor Markets in Transition Economies," Working Papers 9621, Economic Research Forum, revised 07 1996.
    • Handle: RePEc:erg:wpaper:9621
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