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Dynamic reform of public institutions: A model of motivated agents and collective reputation

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  • Valasek, Justin

Abstract

State capacity is optimized when public institutions are staffed by individuals with public-service motivation. However, when motivated agents value the collective reputation of their place of employment, steady-state equilibria with both high and low aggregate motivation (reputation) in the mission-oriented sector exist. Reforming a low-motivation institution requires a non-monotonic wage path: since the effect of higher wages on motivation is negative for a highreputation institution, but positive for a low-reputation institution, a transition to a high-reputation steady state requires an initial wage increase to crowd motivated workers in, followed by a wage decrease to crowd non-motivated workers out.

Suggested Citation

  • Valasek, Justin, 2016. "Dynamic reform of public institutions: A model of motivated agents and collective reputation," Discussion Papers, Research Unit: Economics of Change SP II 2015-303r, Social Science Research Center Berlin (WZB).
    • Handle: RePEc:zbw:wzbeoc:spii2015303r
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    1. Dan Ariely & Anat Bracha & Stephan Meier, 2009. "Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially," American Economic Review, American Economic Association, vol. 99(1), pages 544-555, March.
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    4. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
    5. Auriol, Emmanuelle & Brilon, Stefanie, 2014. "Anti-social behavior in profit and nonprofit organizations," Journal of Public Economics, Elsevier, vol. 117(C), pages 149-161.
    6. Banerjee, Ritwik & Baul, Tushi & Rosenblat, Tanya, 2015. "On self selection of the corrupt into the public sector," Economics Letters, Elsevier, vol. 127(C), pages 43-46.
    7. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
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    11. Handy, Femida & Katz, Eliakim, 1998. "The Wage Differential between Nonprofit Institutions and Corporations: Getting More by Paying Less?," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 246-261, June.
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    13. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
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    More about this item

    Keywords

    Motivated Agents; Institutional Reform; Public Sector;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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