Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2013:26: Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations

Jens Dietrichson ()
Additional contact information
Jens Dietrichson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

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

JEL-codes: D23; D73; D83; H11; H83

34 pages, August 16, 2013

Full text files

WP13_26.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-06 14:12:37.