Administrative Bureaus with Standard Operating Procedures

Miltiadis Makris

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: We investigate the terms of exchange between the legislative branch of the government and an administrative bureau with standard operating procedures. An administrative bureau is a not-for-profit public organisation responsible for the production of a non-marketable good. Such a bureau is tax-financed and the budget appropriations can be linked directly to a verifiable measure of the agency's performance. Also, the tax-financed transfer must not be less than the monetary cost of running the public agency. When standard operating procedures are central to the workings of the bureau, the agency is unencumbered by moral hazard. Yet, such agency is likely to have superior information over its production technology relative to the legislature. In such an information environment, we focus on how the legislature could minimise its welfare losses. Our results come in striking contrast to those in the literature on bureaucracies and to the received adverse selection findings. In a setting where the agency can be either of two cost-types, the principal finds it optimal in most cases to distort the production performance of the beureau regardless of its cost-type. Also the distortions are not of the same direction.

Keywords: bureaucracy; non profit organisations; adverse selection (search for similar items in EconPapers)
JEL-codes: D73 D82 H11 H41 L31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2003-01
New Economics Papers: this item is included in nep-cdm and nep-mfd
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