Time Consistency and Bureaucratic Budget Competition
27 Pages Posted: 26 Sep 2006
Date Written: August 2006
High employment protection in the public sector results in strategic over-employment if government divisions compete for budgets in a dynamic setting. Bureaucrats who are interested in maximising their divisions' output employ excess labor, since this induces the sponsor to provide complementary inputs in the future. Restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring. We also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection. The results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation.
Keywords: bureaucratic competition, time consistency, labor intensity, public sector
JEL Classification: H11, H61, H83
Suggested Citation: Suggested Citation