Dynamic reform of public institutions: A model of motivated agents and collective reputation

• Published in: Journal of public economics Vol. 168; pp. 94 - 108
• Main Author: Valasek, Justin
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.12.2018
• Subjects: Institutional reform; Motivated workers; Public sector; D73; L32; D23; Motivated workers; Institutional reform; Public sector
• ISSN: 0047-2727; 1879-2316
• DOI: 10.1016/j.jpubeco.2018.10.005

State capacity is optimized when public institutions are staffed by individuals with public-service motivation. However, when motivated agents value the collective reputation of their place of employment, steady-state equilibria with both high and low aggregate motivation (reputation) in the mission-oriented sector exist. Reforming a low-motivation institution requires a non-monotonic wage path: since the effect of higher wages on motivation is negative for a high-reputation institution, but positive for a low-reputation institution, a transition to a high-reputation steady state requires an initial wage increase to crowd motivated workers in, followed by a wage decrease to crowd non-motivated workers out. •We study a model of endogenous worker selection in the public sector.•We consider motivated agents that value the collective reputation of their place of employment.•Steady-state equilibria with both high and low aggregate motivation (reputation) in the mission-oriented sector exist.•A transition to the optimal equilibrium is requires a non-monotonic wage path.