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An Incentive-Compatibility Approach to the Problem of Monitoring a Bureau

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  • Claar, Victor V

Abstract

An incentive-compatibility framework for regulating a monopolist with unknown costs is applied to the sponsor’s problem of monitoring a bureau. Following Mueller (1989), the bureau does not make take-it-or-leave-it budget proposals to the sponsor. Rather, the bureau must announce a marginal cost per unit of output to the sponsor. Given that report, the sponsor chooses a price that it will pay to the bureau for each unit of output, and the sponsor chooses the level of output as well. The analysis reveals the price per unit of output that the sponsor must pay to the bureau to maximize social welfare.

Suggested Citation

  • Claar, Victor V, 1997. "An Incentive-Compatibility Approach to the Problem of Monitoring a Bureau," MPRA Paper 14240, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14240
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    References listed on IDEAS

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    1. Gary Miller, 1977. "Bureaucratic compliance as a game on the unit square," Public Choice, Springer, vol. 29(1), pages 37-51, March.
    2. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, August.
    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    4. Prusa, Thomas J., 1990. "An incentive compatible approach to the transfer pricing problem," Journal of International Economics, Elsevier, vol. 28(1-2), pages 155-172, February.
    5. Chan, Kenneth S. & Mestelman, Stuart, 1988. "Institutions, efficiency and the strategic behaviour of sponsors and bureaus," Journal of Public Economics, Elsevier, vol. 37(1), pages 91-102, October.
    6. Gresik, Thomas A. & Nelson, Douglas R., 1994. "Incentive compatible regulation of a foreign-owned subsidiary," Journal of International Economics, Elsevier, vol. 36(3-4), pages 309-331, May.
    7. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
    8. Carlsen, Fredrik & Haugen, Kjetil, 1994. "Markov Perfect Equilibrium in Multi-period Games between Sponsor and Bureau," Public Choice, Springer, vol. 79(3-4), pages 257-280, June.
    9. Breton, Albert & Wintrobe, Ronald, 1975. "The Equilibrium Size of a Budget-maximizing Bureau: A Note on Niskanen's Theory of Bureaucracy," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 195-207, February.
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    12. Wyckoff, Paul Gary, 1990. "The Simple Analytics of Slack-Maximizing Bureaucracy," Public Choice, Springer, vol. 67(1), pages 35-47, October.
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    15. repec:cup:apsrev:v:79:y:1985:i:04:p:1041-1060_23 is not listed on IDEAS
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    Cited by:

    1. Robert M McNab, 2004. "Base Realignment and Closure: Guiding Principles for Peru," Public Economics 0411001, EconWPA.

    More about this item

    Keywords

    Bureaucracy; Administrative Processes in Public Organizations; Corruption; Asymmetric and Private Information; Incentive Compatibility; Monitoring;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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