Working in Public and Private Firms
25 Pages Posted: 14 Oct 2002
Date Written: October 30, 2001
We develop a theoretical framework for comparing incentives, labor productivity and the allocation of effort in public versus private enterprises. We incorporate "socializing", an activity which yields utility for workers and affects a firm's output, into a multitask model of work organization. We establish the two following results. First, the optimal workers' compensation policy displays a larger incentive intensity in the private firm than in the public firm. Second, labor productivity in the private firm may be higher or lower than in the public firm. Both results fit well with the findings of empirical work.
Keywords: Public Enterprise, Privatization, Incentive Schemes
JEL Classification: L32, L33
Suggested Citation: Suggested Citation