Technical progress in bureaucracies

Abstract

In this paper we raise the question whether in bureaucracies incentives are existing to implement technical progress into public goods production as it may be observed in the private sector. Therefore the well-known models of the theory of bureaucracy will be enhanced by technical progress modelled as process innovations. Depending on bureaucrats' preferences two results can be obtained: (a) If bureaucrats maximize their budget or if output or the classical production factors enter their utility function, RD (b) if bureaucrats prefer R&D as an end itself, they will use this factor like other factors by more than the efficient amount. In both cases an allocative inefficient output of the public good is produced. As a consequence society cannot benefit from gains by technical progress since net social welfare is appropriated totally by bureaucrats, even if it is increased by R&D-efforts.