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An Incentive-Compatibility Approach to the Problem of Monitoring a Bureau

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  • Claar, Victor V

Abstract

An incentive-compatibility framework for regulating a monopolist with unknown costs is applied to the sponsor’s problem of monitoring a bureau. Following Mueller (1989), the bureau does not make take-it-or-leave-it budget proposals to the sponsor. Rather, the bureau must announce a marginal cost per unit of output to the sponsor. Given that report, the sponsor chooses a price that it will pay to the bureau for each unit of output, and the sponsor chooses the level of output as well. The analysis reveals the price per unit of output that the sponsor must pay to the bureau to maximize social welfare.

Suggested Citation

  • Claar, Victor V, 1997. "An Incentive-Compatibility Approach to the Problem of Monitoring a Bureau," MPRA Paper 14240, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14240
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    References listed on IDEAS

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    Cited by:

    1. Robert M McNab, 2004. "Base Realignment and Closure: Guiding Principles for Peru," Public Economics 0411001, University Library of Munich, Germany.

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    More about this item

    Keywords

    Bureaucracy; Administrative Processes in Public Organizations; Corruption; Asymmetric and Private Information; Incentive Compatibility; Monitoring;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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