the motivation and bias of bureaucrats many individuals are motivated to exert effort because they care about their jobs rather than because there are monetary consequences to their actions the intrinsic motivation of bureaucrats is the focus of this paper and three primary results are shown first bureaucrats should be biased second sometimes this bias takes the form of advocating for their clients more than would their principal while in other cases they are more hostile to their interests for a range of bureaucracies those who are biased against clients lead to more efficient outcomes third self selection need not produce the desired bias instead selection to bureaucracies is likely to be bifurcated in the sense that it becomes composed of those who are most preferred by the principal and those who are least preferred

theories of the price and quantity of physician services a synthesis and critique abstract in the traditional neoclassical model of supply and demand prices determine the allocation of economic resources the difficulty in applying this model to physician services is the rationing of resources directly by physicians themselves eliminating the allocative function of prices welfare consequences are appropriately judged in terms of efficiency and equity not departures from the structural relationships implied by supply and demand as interpreted here both competitive theories and target income theories of this market imply that physicians consider both their own welfare and the welfare of their patients in their decision making all consumer benefits and all producer costs are internalized by physicians they consequently have an incentive to obtain the maximum possible social benefit from the resources at their disposal to the extent that they are implicitly allowed to share in the resulting social gains the distributions of gains between patients and physicians is determined by professional ethics within bounds imposed by competitive forces

is corporate social responsibility associated with lower wages firms with a reputation as socially responsible may have an important cost advantage if workers prefer their employer to be socially responsible equilibrium wages may be lower in such firms we explore this hypothesis combining norwegian register data with data on firm reputation collected by an employer branding firm adjusting for a large set of background variables we find that the firm s social responsibility reputation is significantly associated with lower wages

motivating devoted workers abstract when increased effort by a worker induces an employer to reduce its use of other inputs inefficiency may result in particular suppose that output increases with the worker s effort that a worker exerts extra effort because he values the output produced beyond the wage he earns that output increases with the capital the employer provides and that these levels are not verifiable under plausible conditions output is lower if the employer can commit to a level of capital than if it cannot if the employer cannot commit then output may decline as the worker values the output more when the employer pays the worker for increased output output may be lower when the worker values it than when he does not lastly efficiency may increase when a firm is paid more for a unit of output than its marginal social value and when the employer can commit to using a given level of other inputs

the illusory effects of saving incentives on saving the authors evaluate research on how tax based saving incentives iras and 401 k s affect saving previous research overstates the impact of the incentives on saving by failing to account for several issues households with saving incentives have stronger tastes for saving than others saving incentives have interacted with debt nonfinancial assets financial markets and pensions and saving incentives represent pretax balances whereas taxable accounts represent posttax balances accounting for these issues essentially eliminates the impact of saving incentives on saving the authors conclude that little if any of the contributions to existing saving incentives have raised saving

selfish bakers caring nurses a model of work motivation abstract work contributes to people s self image in important ways we propose a model in which effort is unobservable and where individuals have a preference for being important to others this gives the following predictions 1 if a worker s effort is paid by his marginal productivity bakers effort is just like in the standard model 2 if a worker s wage is unaffected by his effort nurses more effort is provided than in the standard model 3 to prevent that shirkers become nurses nurses wages must be kept strictly lower than bakers income at this wage level there will be too few nurses 4 overinvestment in nursing equipment can be justified as a means to attract motivated nurses 5 even with full income compensation both nurses and bakers may experience a net utility loss when losing their job 6 similarly both nurses and bakers may prefer work to welfare even with full income compensation

how retirement saving programs increase saving this paper summarizes the authors work on the effect of ira and 401 k contributions on net personal saving they consider many different nonparametric approaches to controlling for heterogeneity in individual saving behavior and conclude that the weight of the available evidence suggests that contributions to both iras and 401 k s largely represent new saving the authors devote particular attention to reconciling their results with the findings in other studies that reach different conclusions sometimes using the same databases that the authors analyze methodological limitations that undermine the reliability of results in other studies explain many of these disparities

quality competition with profit constraints abstract firms in markets such as health care and education are often profit constrained due to regulation or their non profit status and they are often viewed as being altruistic towards consumers we use a spatial competition framework to study incentives for cost containment and quality provision by altruistic firms facing profit constraints if prices are regulated profit constraints lead to lower cost containment efforts but higher quality if and only if firms are sufficiently altruistic under price competition profit constraints reduce quality and cost containment efforts but lead to lower prices if and only if firms are sufficiently altruistic profit constrained firms cost containment efforts are below the first best while their quality might be too high or too low if prices are regulated profit constraints can improve welfare and be a complement or substitute to a higher regulated price depending on the degree of altruism

when are voluntary pensions indifferent abstract the mandatory pension pillar is usually supplemented by a voluntary one in our simple model voluntary pensions partly replace mandatory ones without affecting the outcomes the voluntary pensions are indifferent this result may serve as benchmark

purchasing health care services from providers with unknown altruism cost sharing rules for paying physicians have been advanced as a way of generating incentives for the provision of quality care while recognizing their potential negative effects on production efficiency however the optimal sharing rate typically depends on the degree to which the physician acts in the interest of the patient what we identify as the physician s altruism since the degree of altruism is likely to vary across physicians and to be private information the standard rules for setting the cost sharing rate are unlikely to be optimal this paper derives conditions for the optimal non linear cost sharing mechanism in the presence of asymmetric information about altruism and shows how it can sometimes be implemented through a menu of linear cost sharing schemes the model can be used to rationalize the design of the fund holder system for general practictioners that operated in the 1990s in the united kingdom

identity and the economics of organizations on plebes first day at west point called r day they strip down to their underwear their hair is cut off they are put in uniform they then must address an older cadet with the proper salute and with the statement sir new cadet doe reports to the cadet in the red sash for the first time as ordered plebes must stand and salute and repeat and stand and salute and repeat until they get it exactly right all the while being reprimanded for every tiny mistake in the summary of david lipsky 2003 pp 145 154 who spent four years tracking a company of cadets at west point on r day you surrender your old self in stages but r day is just the beginning of the training and personal re engineering that is to come so that west point graduates emerge four years later as loyal officers in the u s army lipsky shows that despite some failure this tough program is remarkably successful in creating officers with the will to lead in battle economists current picture of organizations and work incentives has no place for the west point program and the motivations it seeks to inculcate in recruits in a standard economic model an individual s preferences are fixed and utility depends only on pecuniary variables the army s aim at west point is to change cadets preferences they wish to inculcate non economic motives in the cadets so that they have the same goals as the u s army alternatively stated the goal of west point is to change the identity of the cadets so they will think of themselves above all else as officers in the u s army they will feel bad about themselves they will lose utility if they fall short of the ideals of such an officer this change in identity

can private giving promote economic segregation this paper explores the theoretical relationship between tax relief for private giving and individual location choice tax relief for giving may receive political support at the local level because of its distributional effects however through its effects on public provision choices such relief may affect individual location decisions and in so doing has an impact on the jurisdictional configurations that can arise in equilibrium for some demographic parameters it will promote economic segregation rather than integration while for others the opposite is true in the former scenario a ban on local tax incentives for giving would be pareto improving and would thus be sanctioned by a majority supported federal tax constitution

public service motivation as an argument for government provision a public service motivation psm inclines employees to provide effort out of concern for the impact of that effort on a valued social service though deemed to be important in the literature on public administration this motivation has not been formally considered by economists when a psm exists this paper establishes conditions under which government bureaucracy can better obtain psm motivated effort from employees than a standard profit maximizing firm the model also provides an efficiency rationale for low powered incentives in both bureaucracies and other organizations producing social services 2000 elsevier science s a all rights reserved

organizational form and output quality this paper re examines the relationship between a firm s organizational form not for profit versus for profit and its output quality the arrow hansmann theory of hidden action on the part of providers predicts higher quality for not for profit suppliers this prediction has a puzzling lack of support in the empirical literature we propose a theory that resolves the empirical puzzle and generates additional testable implications the theory starts with the traditional assumptions of hidden action and supplier altruism it then incorporates two additional features of real world markets hidden information on supplier ability to provide high quality and a variation across buyers in the degree of informational asymmetry the central prediction of the theory is that quality has a higher variance across for profits than across not for profits preliminary evidence from the us market for hospital care is consistent with this prediction

why are tax expenditures for giving embodied in fiscal constitutions abstract this paper asks whether there can be unanimous support for a fiscal constitution that includes tax expenditures for giving among the set of available fiscal instruments we describe a political economy model of fiscal choices where individuals with different incomes vote over levels of proportional income taxation and over tax incentives for giving and investigate how the availability of such incentives affects political equilibrium outcomes and welfare for different income groups we find that unanimous support for the use of tax incentives for giving can indeed arise and is more likely the more unequal is the distribution of income

contracting for health services when patient demand does not reflect quality this paper analyses contracts to keep down costs while maintaining quality of health services when patient demand does not reflect quality there is then a natural role for forms of contract that have emerged during the reforms of the nhs in britain that differ from pure fixed price or cost reimbursement contracts the optimal form depends on whether the provider is entirely self interested or benevolent in having genuine concern for patient welfare with fully benevolent providers there are roles for block and cost and volume contracts with partially benevolent providers some degree of cost sharing is typically optimal

occupational social value and returns to long hours this paper examines the phenomenon of uncompensated long hours in jobs with pro social characteristics and presents evidence that long hour wage premiums and occupational social value are substitutes in compensating salaried workers who supply hours exceeding the standard working week i show that the social value of an occupation in particular the degree to which jobs involve helping or providing service to others is inversely related to long hour pay allowing for heterogeneity in the degree to which workers value their job s helping orientation lets me explore how gender differences in employees attitudes toward pro social behaviour can explain some of the observed occupational sorting trends and gender differences in long hour compensation women tend to be more strongly drawn to helping occupations and at the same time receive lower long hour premiums in these jobs relative to men i offer a theoretical framework to rationalize the empirical trends

animal welfare and social decisions is it time to take bentham seriously abstract this paper analyzes and questions the standard welfare economics assumption of anthropocentric welfarism i e that only human well being counts intrinsically alternatives where also animal welfare matters intrinsically are analyzed both theoretically and empirically the general public s ethical preferences are measured through a survey of a representative sample in sweden and the responses from a clear majority suggest that animal welfare should indeed carry intrinsic weight in public decision making current legislation in many countries is consistent with this a brief review of moral philosophy on animal welfare indicates that a large majority of philosophers believe that animal welfare should count intrinsically it is moreover demonstrated that it is theoretically and practically possible to generalize welfare economics in order to give intrinsic value also to animal welfare the paper concludes that there are strong reasons to sometimes generalize welfare economics in order to take animal welfare into account directly i e in addition to effects through individual utilities the practical implications of doing so are likely to be more important over time as the scientific methods of measuring animal welfare are gradually improving

the economics of vocation or why is a badly paid nurse a good nurse abstract given the longstanding shortage of nurses in many jurisdictions why could not nursing wages be raised to attract more people into the profession we tell a story in which the status of nursing as a vocation implies that increasing wages reduces the average quality of applicants attracted the underlying mechanism accords with the notion that increasing wages might attract the wrong sort of people into the profession and highlights an in efficiency wage mechanism particular to vocations which makes wages sticky up wards the analysis has implications for job design in vocation based sectors such as nursing and teaching

political sustainability and the design of social insurance this paper examines how the issue of political support affects the design of social insurance it distinguishes between redistributive character and size of social protection three main results emerge first it may be appropriate to adopt a system which is less redistributive than otherwise optimal in order to ensure political support for an adequate level of coverage in the second voting stage second supplementary private insurance may increase the welfare of the poor even if it is effectively bought only by the rich third the case for prohibiting supplementary private insurance may become stronger when the efficiency of private insurance markets increases

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

moral hazard and sickness insurance abstract we study if the replacement level in the swedish national sickness insurance which replaces foregone earnings due to temporary illnesses affects work absence behavior we use micro data and estimate the effects of a major reform whereby the replacement level during the first 90 days in each absence spell was reduced on work attendance to separate out the effect of the reform from any trend in work absence we distinguish between the implications on the incidence of work absence i e the frequency of spells and the duration of the spells we also use a regression discontinuity approach to estimate the effects on the prevalence of work absence finally we estimate elasticities with respect to the replacement level in the sickness insurance

two tier public provision comparing public systems abstract the paper considers a two tier institution in which government provides public services but individuals can opt out of public provision but not taxes funding for the public service is chosen endogenously by majority vote and we first provide necessary and sufficient conditions for a majority vote equilibrium in line with existing results the equilibrium tax rate usually falls below the one found in a one tier system opting out of public consumption is prohibited as the public system loses the political support of the rich who exit we prove that when the two tier system majority dominates a purely private system a majority in society always welcomes a transition from a one tier public system to a two tier system it is the only system that is stable in an evolutionary sense otherwise a majority consisting of the middle class may be in favor of staying in a one tier system prohibiting exit because of a slippery slope argument

ends against the middle determining public service provision when there are private alternatives abstract public provision of a service coexists with private market provision the quality of public provision is determined by majority vote preferences are not single peaked owing to the presence of private alternatives we identify two cases in one majority voting equilibrium always exists and the median income voter is pivotal in the other a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median when equilibrium exists a coalition of middle income households who consume the public alternative will be opposed by a coalition of rich and poor households with the rich choosing private consumption

a model of physician behaviour with demand inducement we present a model of the physician patient relationship extending on the model by farley farley p j 1986 theories of the price and quantity of physician services journal of health economics 5 315 333 of supplier induced demand sid first we make a case for the way this model specifies professional ethics physician competition and sid itself second we derive predictions from this model and confront them with the neoclassical model finally we stress the importance of considering how sid affects patient welfare in providing an example where physicians ability to induce makes patients better off to evaluate patient welfare we derive approximations of the patients welfare loss due to physician market power in both the neoclassical model and the inducement model

income inequality and the quality of public services a developing country perspective abstract that the high growth rising inequality phenomenon experienced by many high growth developing economies in the recent past may lead to discontent among the poor is a well discussed issue this paper argues that as the demand for higher quality of the public services rises with income the rising income in the hands of the rich leads to their dissatisfaction about the quality of available public services thereby inducing them to form their own club for self provision of the public services whenever possible this however results in a lowering of quality available to the others outside the club despite less crowding at the publicly provided facilities

voluntary donations and public expenditures in a federal system proponents of the new federalism argue that nonprofit organizations and local governments will fully offset federal social service expenditure cutbacks the author analyzes this proposition as a competitive game in which donations are motivated by private and public good considerations the author characterizes the response of political economic equilibrium to exogenous changes in federal expenditures when local voters are cognizant of donor reactions partial replacement is the most likely outcome though others are possible copyright 1987 by american economic association

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

corporate social responsibility a microeconomic review of the literature this paper provides a review of the theoretical and empirical literature on corporate social responsibility csr depending on whether an individual can be considered as selfish or whether she has also social preferences motives for csr can be explained in different ways furthermore we explicitly highlight the influence of different corporate governance system on csr as well as the relationship between firms size and social commitment because it is difficult to distinguish between different theories in empirical studies we argue that an experimental approach might be suitable to test theories of csr

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

majority rule and the public provision of a private good this paper extends the literature on the socialization of commodities by developing a model of voting over the public provision of a private good health care

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

the cold shiver of not giving enough on the social cost of recycling campaigns governments sometimes try to increase individuals contributions to public goods through appeals to consumer responsibility rather than by economic incentives for example in recycling campaigns using standard consumer theory one would hardly expect such campaigns to work at all but if consumers are motivated by norms appeals may work through changing consumers perception of the normrequirement however increasing voluntary contributions through appeals may come at a social cost the reason is that appeals work through imposing a heavier perceived responsibility on consumers this represents a welfare loss which is not necessarily outweighed by warm glow benefits

collective choice and voluntary provision of public goods some public goods are provided entirely with private contributions others with a mixture of public and private funding and still others are entirely publicly funded in order to study this variation a model of dual provision is developed that endogenizes public and private funding households vote over an income tax that finances public supply of the good and on whether to permit private contributions while permitting private contributions may lead to a reduction in total provision a majority always favors permitting private contributions results are developed for small and large economies and the relevance of nonexcludability and noncongestion are investigated

incentives and the sorting of altruistic agents into street level bureaucracies many street level bureaucrats such as caseworkers have the dual task of helping some clients while sanctioning others we develop a model of such a street level bureaucracy and study the implications of its personnel policy on the self selection and allocation decisions of agents who differ in altruism towards clients when bureaucrats are paid flat wages they do not sanction and the most altruistic types sort into bureaucracy pay for performance induces some bureaucrats to sanction but necessitates an increase in expected wage compensation which can result in sorting from both the top and bottom of the altruism distribution we also show how client composition affects sorting and why street level bureaucrats often experience an overload of clients

a positive theory of in kind transfers and the negative income tax normative arguments for restricting redistribution to cash transfers or a negative income tax have not appealed to politicians or their constituents all modern governments redistribute income in kind and provide goods and services that can be produced and distributed privately at times public and private supply coexist housing services medical care and education are examples but so too are safety and many regulatory activities of government

voting inequality and redistribution this paper surveys models of voting on redistribution under reason able assumptions the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner if the median is poorer than average redistribution is from rich to poor and increasing inequality increases redistribution however under different assumptions about the economic environment redistribution may not be simply rich to poor and inequality need not increase redistribution several lines of argument are presented in particular political participation public provision of private goods public pensions and tax avoidance or evasion

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists

provision of a pure local public good in a spatial model with many jurisdictions abstract this paper examines the provision of a pure local public good in jurisdictions that are spaced evenly along an infinite line each jurisdiction either supplies the local public good or else its residents travel to another jurisdiction to consume the local public good the equilibrium spacing between jurisdictions which supply the local public good which can be uneven varying between a minimum spacing and a maximum spacing for given exogenous parameters can be greater than equal to or less than the socially optimal spacing