Excessive public employment and rent-seeking traps

Esteban Jaimovich and Juan Pablo Rud

Journal of Development Economics, 2014, vol. 106, issue C, 144-155

Abstract: We propose a model where the size of the public sector and aggregate output are interrelated through the occupational choice of agents who differ in their skill level and degree of public-mindedness. When the public sector attracts bureaucrats with low degree of public service motivation, they will use their position to rent seek by employing an excessive number of unskilled workers. This leads to an equilibrium with relatively high unskilled wages, which lowers profits and deters entrepreneurship. Conversely, an equilibrium with a lean public sector and greater private economic activity arises when public service motivated agents populate the state bureaucracy. These agents exert high effort and employ a limited number of unskilled workers. Our model also shows that a bloated public sector with high wages may be supported by the unskilled agents.

Keywords: Rent seeking; Occupational choice; Public service motivation (search for similar items in EconPapers)
JEL-codes: H11 H83 J24 O10 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Excessive Public Employment and Rent-Seeking Traps (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:106:y:2014:i:c:p:144-155

DOI: 10.1016/j.jdeveco.2013.09.007

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