Incentives and Tournaments in Public Organizations

Abstract

This essay discusses an integrative economic theory that reconciles rank-order tournaments with the traditional public administration concern for accountability in government. Recent reforms have concentrated on organizational designs that flow from piece-rate approaches to employee compensation and have ignored the incentive-compatibility aspects of traditional personnel systems. My claim is that promotion tournaments in public organization hierarchies are perhaps more efficient than the pay-for-performance systems often called for in traditional principal-agent approaches.

Keywords: Agency theory, public organizations, pay for performance, organizational design

JEL Classification: D73, M52