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Identity, incentives and their dynamics in the production of publicly provided goods

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  • Paolo POLIDORI

    ()

  • Désirée TEOBALDELLI

    ()

Abstract

An important issue in the literature on the role of government provision of goods and services concerns the understanding of inefficiencies related to the opportunistic behavior of public employees. This paper studies incentives in such contexts and analyzes the consequences of introducing a behavioral component into a model of agency within public organizations. In particular, we argue that employees may be motivated to provide effort in ways that enable them to shape their identity/self image. The term identity describes gains and losses in utility from behavior that conforms or departs from the ideal prescribed for particular social categories, such as being a "good" public employee. We develop a principal-agent model that incorporates identity, in addition to monetary rewards, and we show that when agents are guided by such intrinsic motivations, it may be optimal for the principal to choose a relatively inefficient monitoring technology and reduce monetary incentives. The mechanism leading to this result is related to the general equilibrium effect going through the public administration budget constraint and the composition of workers within the firm. We then analyze a dynamic version of the model and show that a higher political instability may induce the government to adopt inefficient organization schemes that reduce the value of identity and negatively affect future provision of public services.

Suggested Citation

  • Paolo POLIDORI & Désirée TEOBALDELLI, 2011. "Identity, incentives and their dynamics in the production of publicly provided goods," Departmental Working Papers 2011-27, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2011-27
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    File URL: http://wp.demm.unimi.it/files/wp/2011/DEMM-2011_027wp.pdf
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    References listed on IDEAS

    as
    1. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    2. Frey, Bruno S, 1992. "Tertium Datur: Pricing, Regulating and Intrinsic Motivation," Kyklos, Wiley Blackwell, vol. 45(2), pages 161-184.
    3. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 905-950.
    4. Louis Kaplow & Steven Shavell, 2007. "Moral Rules, the Moral Sentiments, and Behavior: Toward a Theory of an Optimal Moral System," Journal of Political Economy, University of Chicago Press, vol. 115, pages 494-514.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Identity; Incentives; Public Goods Provision; Efficiency Wages; Public Service Motivation;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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