Managerial incentives and control in public enterprises

Thesis



The subject matter of the thesis is the study of managerial incentive schemes for public enterprises. The problem of incentives and control is characterized in Chapter I stressing asymmetric information and preferences between principal (Minister) and agent (Manager). Chapter II reconsiders the findings of some previous works on the use of simple mechanisms under certainty and it shows that incentive problems may be solved with a pure-rent type contract. One of the parameters of the contract (profit-sharing ratio) is central to the enforcement of 'managerial' efficiency while the relative weights given to profit and (an approximation to) consumer surplus will influence optimal pricing decisions. This feature is maintained in a risky environment (Chapter III) although reinterpreted in a second-best fashion due to the trade-off between incentives and risk-sharing. The weights given to each side of the contract depend on the impact of price changes upon the degree of profit-uncertainty and the managerially self-selected level of effort. In addition it is shown that, when providing incentives, the Minister will depart from the pricing rule derived under full information. Chapter IV shows that these results are valid when capacity choice and non-price rationing issues become relevant. Chapter V attempts to integrate the issues of performance indicators and efficiency audits into the previous framework. It is shown that there must exist an upper limit to the admissible number of performance indicators and that efficiency audits can be designed as conditional investigation procedures and used according to an expected cost-benefit characterization. Some central underlying factors affecting the form of the optimal investigation strategy are identified. Finally, Chapter VI attempts to consider the previous results and their implications within a brief discussion of U.K. policy for public enterprises in the last decades.

Authors: Navajas, F; Navajas, Fernando Heberto

• Publication date: 1985
• DOI: 10.5287/ora-w4ypxbde4
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Subjects: Government business enterprises; Management; State supervision