The Limits of Bureaucratic Efficiency

Posted: 2 Oct 2003

See all articles by Canice Prendergast

Canice Prendergast

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Abstract

Bureaucracies tend to be used when consumers cannot be trusted to choose outcomes efficiently. But a primary means of bureaucratic oversight is consumer complaints. But this can give bureaucrats an incentive to inefficiently accede to consumer demands to avoid a complaint. I show that when this incentive is important, bureaucracies (efficiently) respond by (i) ignoring legitimate consumer complaints, (ii) monitoring more in situations in which it is not needed, (iii) delaying decision making "too long," and (iv) biasing oversight against consumers. I also show that bureaucracies are used only when consumers cannot be trusted. As a result, observed bureaucracies are always inefficient.

Suggested Citation

Prendergast, Canice, The Limits of Bureaucratic Efficiency. Journal of Political Economy, Vol. 111, October 2003. Available at SSRN: https://ssrn.com/abstract=441943

Canice Prendergast (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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