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Power of Incentives with Motivated Agents in Public Organizations
Author(s) -
NAEGELEN FLORENCE,
MOUGEOT MICHEL
Publication year - 2011
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2011.01505.x
Subject(s) - incentive , public service motivation , argument (complex analysis) , altruism (biology) , microeconomics , balance (ability) , public service , service (business) , power (physics) , economics , business , public sector , marketing , public relations , medicine , psychology , social psychology , biochemistry , chemistry , economy , physics , quantum mechanics , political science , physical medicine and rehabilitation
Public service motivation is often considered as an argument for low‐powered incentive schemes in the public sector. In this paper, we characterize the optimal contract between a public regulator and an altruistic agent according to the degree α of public service motivation, when the type of the public service consumer is privately observed. We show that the requested effort is nondecreasing with α and can be higher than the first‐best level. Moreover, we show that the agent is put on a high‐powered contract when some customers are served but that this contract is associated with different types of consumers according to α. In contrast, the agent is never put on a cost‐plus contract. Finally, we show that the first‐best allocation can be achieved under budget balance for a degree of altruism higher than a threshold that we characterize.