DP2719 Working in Public and Private Firms

Author(s): Giacomo Corneo, Rafael Rob
Publication Date: March 2001
Keyword(s): Incentive Schemes, Privatization, Public Enterprise
JEL(s): L32, L33
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2719

We develop a theoretical framework for comparing the style of work in public and private enterprises. We incorporate ?socializing?, as an activity that yields utility for workers and affects a firm?s output, into a simple multitask model of work organization. In contrast with previous models, we establish the two following results. First, the optimal workers? compensation policy displays a larger incentive intensity in the private firm than in the public firm. Second, labour productivity in the private firm may be higher or lower than in the public firm. Both results fit well with the findings of empirical work.