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Use it or lose it

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  • Fahad Khalil
  • Doyoung Kim
  • Jacques Lawarree

Abstract

We examine the optimality of budget policies imposed by a funding authority on a bureaucrat who operates under a fixed budget. In particular, we study a “use‐it‐or‐lose‐it” (UILI) policy under which the bureaucrat has to return any unspent budget without being able to “roll over” any part to the next period. Instead of returning the unspent budget, the bureaucrat can go on a spending spree and engage in policy drift, which is inversely related to his motivation. The bureaucrat's motivation represents how well matched he is with the bureaucracy's mission. We show that a UILI policy is complementary to motivation as it has stronger ex ante positive incentive effects on more motivated bureaucrats. Such ex ante positive effects can overcome the ex post inefficiency of the policy and make a UILI policy optimal when the bureaucrat is well matched with the bureaucracy's mission or when its budget is large.

Suggested Citation

  • Fahad Khalil & Doyoung Kim & Jacques Lawarree, 2019. "Use it or lose it," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 991-1016, December.
    • Handle: RePEc:bla:jpbect:v:21:y:2019:i:6:p:991-1016
    DOI: 10.1111/jpet.12391
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    Cited by:

    1. Hoyong Jung, 2022. "Online Open Budget: The Effects of Budget Transparency on Budget Efficiency," Public Finance Review, , vol. 50(1), pages 91-119, January.
    2. Tim Friehe & Murat C. Mungan, 2021. "The political economy of enforcer liability for wrongful police stops," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 141-157, February.
    3. Simone Marsiglio & Marco Tolotti, 2020. "Motivation crowding‐out and green‐paradox‐like outcomes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1559-1583, September.

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