Productivity Improvements in Public Organizations

Abstract

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 or incentive schemes assigning tasks to agents who do not participate in the productivity improvement exercise.

Keywords: public organizations, incentive schemes, tournament and rotation schemes, collusion

JEL Classification: D82, M12, L31