DP4469 Productivity Improvements in Public Organizations

Author(s): Hans Gersbach, Marten Keil
Publication Date: July 2004
Keyword(s): collusion, incentive schemes, public organizations, tournament and rotation schemes
JEL(s): D82, L31, M12
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4469

In this Paper we examine the possibilities a principal in a public organization has to motivate agents for productivity improvements where standard stick and carrot incentives cannot be used. The principal?s only incentive device is a reallocation of budgets and tasks across agents depending on the extent of productivity improvements revealed by each agent. We first show that as long as agents do not collude, the principal can use rotation and tournament schemes to eliminate all slack in the organization. Second, to break collusion between agents, the principal must use discriminatory tournament schemes. In some cases, however, there does not exist an incentive scheme to overcome collusion.