Working Papers, Department of Economics, Lund University
Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations
Abstract: Why are coordination problems common when public sector
organizations share responsibilities, and what can be done to mitigate such
problems? This paper uses a multi-task principal-agent model to examine two
related reasons: the incentives to coordinate resource allocation and the
difficulties of measuring performance. The analysis shows that when targets
are set individually for each organization, the resulting incentives
normally induce inefficient resource allocations. If the principal impose
shared targets, this may improve the incentives to coordinate but the
success of this instrument depends in general on the imprecision and
distortion of performance measures, as well as agent motivation. Besides
decreasing available resources, imprecise performance measures also affect
agents' possibility to learn the function that determines value.
Simulations with a least squares learning rule show that the one-shot model
is a good approximation when the imprecision of performance measures is low
to moderate and one parameter is initially unknown. However, substantial
and lengthy deviations from equilibrium values are frequent when three
parameters have to be learned.
Keywords: Public sector organizations; Coordination incentives; Performance measurement; Shared targets; Learning; (follow links to similar papers)
JEL-Codes: D23; D73; D83; H11; H83; (follow links to similar papers)
34 pages, August 16, 2013
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