Civil servants have a bad reputation of being lazy. However, citizens' personal experiences with civil servants appear to be significantly better. We develop a model of an economy in which workers differ in laziness and in public service motivation, and characterise optimal incentive contracts for public sector workers under different informational assumptions. When civil servants' effort is unverifiable, lazy workers find working in the public sector highly attractive and may crowd out workers with a public service motivation. When effort is verifiable, the government optimally attracts motivated workers as well as the economy's laziest workers by offering separating contracts, which are both distorted. Even though contract distortions reduce aggregate welfare, a majority of society may be better off as public goods come at a lower cost.

incentive contracts, public sector labour markets, public service motivation, work ethics
Structure and Scope of Government (jel H1), Wages, Compensation, and Labor Costs (jel J3), Particular Labor Markets (jel J4), Nonprofit Organizations and Public Enterprise (jel L3), Personnel Economics (jel M5)
hdl.handle.net/1765/6642
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Delfgaauw, J, & Dur, A.J. (2005). Incentives and Workers' Motivation in the Public Sector (No. TI 04-060/1). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6642