The Dilemma of Delegating Search: Budgeting in Public Employment Services
24 Pages Posted: 13 Sep 2010
The poor performance often attributed to many public employment services may be explained in part by a delegation problem between the central office and local job centers. In markets characterized by frictions, job centers function as match-makers, linking job seekers with relevant vacancies. Because their search intensity in contacting employers and collecting data is not verifiable by the central authority, a typical moral hazard problem can arise. To overcome the delegation problem and provide high-powered incentives for high levels of search effort on the part of job centers, we propose output-related schemes that assign greater staff capacity to agencies achieving high strike rates.
Keywords: matching unemployment, public employment service, delegation problem, moral hazard, search theory
JEL Classification: J64, D82
Suggested Citation: Suggested Citation