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

Listed author(s):
  • Paolo POLIDORI

    ()

  • Désirée TEOBALDELLI

    ()

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.

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File URL: http://wp.demm.unimi.it/files/wp/2011/DEMM-2011_027wp.pdf
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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2011-27.

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Date of creation: 08 Nov 2011
Handle: RePEc:mil:wpdepa:2011-27
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  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. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 905-950.
  3. Frey, Bruno S, 1992. "Tertium Datur: Pricing, Regulating and Intrinsic Motivation," Kyklos, Wiley Blackwell, vol. 45(2), pages 161-184.
  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.
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