Contracts offered by bureaucrats

Fahad Khalil, Doyoung Kim and Jacques Lawarree

RAND Journal of Economics, 2013, vol. 44, issue 4, 686-711

Abstract: type="main">

We examine the power of incentives in bureaucracies by studying contracts offered by a bureaucrat to her agent. The bureaucrat operates under a fixed budget, optimally chosen by a funding authority, and she can engage in policy drift, which we define as inversely related to her intrinsic motivation. Interaction between a fixed budget and policy drift results in low-powered incentives. We discuss how the bureaucrat may benefit from stricter accountability as it leads to larger budgets. Low-powered incentives remain even in an alternative centralized setting, where the funding authority contracts directly with the agent using the bureaucrat to monitor output.

Date: 2013
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