Why are Government Bureaucracies Inefficient? A Prospective Approach

12 Pages Posted: 15 May 2012

Date Written: May 14, 2012

Abstract

Public bureaucracies are less efficient than private organizations in many of their activities. This is generally attributed to the absence of competition and of the profit motive, and to the particular constraints of public bureaucracies with regards to transparency and the weaker governance of the political market. But there is a more fundamental reason, and this is the argument developed in this paper. Organizations can be seen as a web of contracts binding stakeholders together. In any organization, overachieving employees deliver more than their so-called “relational” contracts call for. As a result, a net “organizational energy” is generated. While private organizations can easily channel this surplus energy into value-creating activities, public bureaucracies are less able to do that, and they have to rely on rules and other constraints to cope with it. The net effect is less efficiency. Only in selected activities such as policy-making can public bureaucracies aspire to be as efficient, and indeed, better equipped than private organizations.

Keywords: Government bureaucracy, organizational efficiency, organizational energy, relational contract, government efficiency

JEL Classification: D21, H11, J20, L32, L33

Suggested Citation

Cote, Marcel, Why are Government Bureaucracies Inefficient? A Prospective Approach (May 14, 2012). Available at SSRN: https://ssrn.com/abstract=2057866 or http://dx.doi.org/10.2139/ssrn.2057866

Marcel Cote (Contact Author)

Secor Consulting ( email )

555 Boul. René Lévesque
9th floor
Montréal, Québec H2Z 2B1
Canada

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