Faculty Publications

A Proposal For Designing Employment Contracts For Government Managers

Document Type

Article

Journal/Book/Conference Title

Socio-Economic Planning Sciences

Volume

31

Issue

3

First Page

205

Last Page

216

Abstract

A popular framework for studying the effects of various factors on the structure of employment contracts has been the economic theory of agency. In this paper, we propose an employment contract scheme for a governmental operation that embeds data envelopment analysis (DEA) into an agency model. The principal (taxpayers or general public) is represented to be interested in having the government organization operate efficiently while the agent (government manager) is interested in financial compensation and leisure. We show that by integrating the data envelopment analysis model with the agency model a compensation scheme can be developed that will meet the manager's minimum utility while motivating the manager to operate efficiently. This satisfies the utility function of the general public. The paper concludes with a simple numerical example to illustrate the proposed model. © 1997 Elsevier Science Ltd.

Department

Department of Accounting

Original Publication Date

1-1-1997

DOI of published version

10.1016/S0038-0121(96)00033-X

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