Why High-level Executives Earn Less in the Governmental Than in the Private Sector

Amihai Glazer and Hideki Konishi
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Amihai Glazer: Department of Economics University of California, Irvine
Hideki Konishi: Waseda Institute of Political Economy Waseda University

No 2215, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: Governmental officials often have far greater responsibilities and make far more consequential decisions than do CEOs of private firms. Nevertheless, governmental officials often earn far less and face low-powered incentives.We offer explanations for the differences, considering Nash bargaining with the head of a governmental agency or with the CEO of a for-profit firm. If regulations restrict the price a governmental agency can charge, or if at a governmental agency one official sets price and a different official negotiates pay, then the head of a governmental agency may earn less than the head of a for-profit firm. We also show that a governmental official paid less than a private CEO faces weaker incentives. That in turn can make costs, other than CEO pay, higher at a governmental agency. We also consider elections, with voters choosing an official to set the price of the good, and voters choosing an official to negotiate with the CEO over his pay. A governmental official will be paid less than a CEO at a private firm if the income distribution in the population is sufficiently unequal.

Keywords: CEO pay; governmental officials; Nash bargaining; tax distortions; structureinduced equilibrium; low-powered incentives (search for similar items in EconPapers)
JEL-codes: D23 H11 J31 J45 (search for similar items in EconPapers)
Pages: 33 pages
New Economics Papers: this item is included in nep-gth and nep-lma
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