Abstract
We construct a simple game-theoretic model in which one private firm and one public (or state-owned) firm compete in quantity of goods produced or service provided. The private and public firms each decide how many workers with public service motivation they will employ as part of an incentive scheme. We assume that both firms produce homogeneous goods with a quadratic cost function but that the private firm is more efficient than the public firm. Both firms are faced with linear inverse demand. We show that whether public firms employ more workers with public service motivation than private firms depends on the efficiency gap between the public and private sectors. This result explains why some literature in public administration reports a significant difference in public service motivation between employees in the private and public sectors and the other literature does not.
Highlights
One of the important issues in the literature of public administration is whether employees of public firms and those of private firms are different in terms of work-related values, reward preferences, needs, and personality types (Wittmer, 1991)
We show that the strategic incentive to employ workers with public service motivation and the disparity in efficiency between the public and private sectors accounts for the difference
We consider a simple model and show that the equilibrium tendency of employing workers with public service motivation depends on the difference between public and private firms’ efficiency levels
Summary
One of the important issues in the literature of public administration is whether employees of public (or state-owned) firms and those of private firms are different in terms of work-related values, reward preferences, needs, and personality types (Wittmer, 1991). In order to explain why we cannot obtain robust evidence about the difference in public service motivation between workers in the public and private sectors, we provide a gametheoretic model. Owners and governors of the firms in the public and private sectors decide how many workers with public service motivation to employ. This decision works as a commitment of the incentive scheme. We can interpret i as the degree to which a private or state-owned firm employs workers with public service motivation. After the manager (or servant) of firm i observes the incentive scheme, they choose the output xi in the second stage. The first-order conditions lead to the outcome in the second stage:
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