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Why High-level Executives Earn Less in the Governmental Than in the Private Sector

Author

Listed:
  • Amihai Glazer

    (Department of Economics University of California, Irvine)

  • Hideki Konishi

    (Waseda Institute of Political Economy Waseda University)

Abstract

Governmental officials often have far greater responsibilities and make far more consequential decisions than do CEOs of private firms. Nevertheless, governmental officials often earn far less and face low-powered incentives.We offer explanations for the differences, considering Nash bargaining with the head of a governmental agency or with the CEO of a for-profit firm. If regulations restrict the price a governmental agency can charge, or if at a governmental agency one official sets price and a different official negotiates pay, then the head of a governmental agency may earn less than the head of a for-profit firm. We also show that a governmental official paid less than a private CEO faces weaker incentives. That in turn can make costs, other than CEO pay, higher at a governmental agency. We also consider elections, with voters choosing an official to set the price of the good, and voters choosing an official to negotiate with the CEO over his pay. A governmental official will be paid less than a CEO at a private firm if the income distribution in the population is sufficiently unequal.

Suggested Citation

  • Amihai Glazer & Hideki Konishi, "undated". "Why High-level Executives Earn Less in the Governmental Than in the Private Sector," Working Papers 2215, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2215
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    References listed on IDEAS

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    More about this item

    Keywords

    CEO pay; governmental officials; Nash bargaining; tax distortions; structureinduced equilibrium; low-powered incentives;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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