Internal organization of government

Yet, in view of the important role played by civil servants and politicians in our economies and in developing countries, it is worth asking what differentiates a corporate executive and a government official. The first part of this paper discusses some specificities of the design of incentives in the public sector including the multiplicity of goals, nonmeasurabilities, unclear weighing of formal incentives, lack of comparison, and heterogeneity of principals. It is argued that low-powered incentives are a natural consequence of the specificities of government. The second part of the paper discusses some implications of low- powered incentives. First, career concerns, associated with the prospect of reelection, promotion, or employment in the private sector, are even more pervasive than in the private sector. Career concerns are articulated around a particular mission that is pursued by the government official. This mission, however, need not be the socially desirable one. Indeed, there is a potential for a multiplicity of missions to be pursued by rational officials. Furthermore, composite missions that reflect the several goals of social optimization may not be in the official"s self-interest. This economic analysis complements recent work in political science on government agencies. Second, the paper discusses the issue of regulatory capture and corruption, and how institutional design may naturally respond to low-powered incentives. While the second part of the paper analyzes individual incentive, the third part studies the following types of division of labor within government: (1) intertemporal division of labor between successive administrations and constitutional limits on commitment by the State; (2) division of labor between the government and the private sector, and the costs and benefits of privatization; (3) division of labor among ministries and the use of multiple principals to control economic agents; and (4) division of labor aimed at creating information for public decision making and the use of enfranchised advocates of specific interests. (Author abstract)