In a government agency, there is no way to determine which mistakes are costly and which are unimportant, since there are no profits to inform decision makers. To insure taxpayers' resources are not wasted, officials must develop rules and procedures that define appropriate behavior. However, rigid rules have a serious down side. Rules stifle innovation and initiative. They drive up costs as they force public servants to spend resources and efforts in compliance.
Bureaucracy is in a difficult position.
Without profits to guide behavior, grave mistakes are avoided by setting elaborate rules and procedures. Unless officials proscribe rules and procedures, taxpayers may suffer as mistakes are not corrected. However, rigid rules also impede creativity, innovation and flexibility. Clearly, it is a problem inherent in the public sector. To avoid the costs of bureaucracy, it is incumbent upon a society, which desires to increase economic well-being, to reduce the size and scope of government.