Contracts Offered by Bureaucrats
46 Pages Posted: 29 Jun 2013
Date Written: June 10, 2013
Abstract
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.
Keywords: Bureaucracy, policy drift, motivated agents, contracts, delegation, collusion
JEL Classification: D73, D82, D86
Suggested Citation: Suggested Citation