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 Open Journal of Political Science 2013. Vol.3, No.4, 131-133 Published Online October 2013 in SciRes (http://www.scirp.org/journal/ojps) http://dx.doi.org/10.4236/ojps.2013.34018 Copyright © 2013 SciRe s . 131 Strategic Reason for Employing Workers with Public Service Motivation Wakana Hatada , Tomomichi Mizuno Faculty of Economics, University of Nagasaki, Sasebo City, Nagasaki, Japan Email: [email protected], [email protected] Received June 20th, 2013 ; revised July 23rd, 2013; accepted August 7th, 2013 Copyright © 2013 Wakana Hatada, Tomomichi Mizuno. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. We construct a simple game-theoretic model in which one private firm and one public (or state-owned) firm compete in quantity of goods produced or service provided. The private and public firms each decide how many workers with public service motivation they will employ as part of an incentive scheme. We assume that both firms produce homogeneous goods with a quadratic cost function but that the private firm is more efficient than the public firm. Both firms are faced with linear inverse demand. We show that whether public firms employ more workers with public service motivation than private firms depends on the efficiency gap between the public and private sectors. This result explains why some literature in pub- lic administration reports a significant difference in public service motivation between employees in the private and public sectors and the other literature does not. Keywords: Public Service Motivation; Oligopoly; Strategic Hiring Policy; Efficiency Gap Introduction One of the important issues in the literature of public admi- nistration is whether employees of public (or state-owned) firms and those of private firms are different in terms of work-related values, reward preferences, needs, and personality types (Wittmer, 1991). Following a prominent study of public service motivation (Perry & Porter, 1982; Perry, 1996, 1997), many papers study this issue1. However, overall, empirical studies on this issue do not have consistent results. That is, some studies show that employees of public and private firms are different, but other studies do not show this. For example, while Rainey (1982) reports a difference in preferences regard- ing the value put on helping others, Gabris and Simo (1995) show that there is no difference between workers in the public and private sectors. In order to explain why we cannot obtain robust evidence about the difference in public service motivation between workers in the public and private sectors, we provide a game- theoretic model. Analyzing this model, we show that the strate- gic incentive to employ workers with public service motivation and the disparity in efficiency between the public and private sectors accounts for the difference. That is, whether public firms employ more workers with public service motivation than private firms do depends on the efficiency gap between public and private firms. Our approach is relevant to the issue of delegation in micro- economic theory and game theory (Vickers, 1985; Fershtman & Judd, 1987). In the delegation model, the objective of the prin- cipal is not the same as that of his agent. Thus, the principal creates an incentive scheme for the agent. In our model, the owners and governors of the firms in the public and private sectors decide how many workers with public service motiva- tion to employ. This decision works as a commitment of the incentive scheme. This point is in contrast to previous studies. This paper is organized as follows. In the next section, we present the model. The third section calculates the equilibrium. The final section offers a conclusion. The Model We provide a simple game-theoretic model. We assume a public service market (e.g., the education industry or security industry) where one private firm (firm P) and one state-owned firm (firm S) compete in quantity of goods produced or service provided2. In each firm, there is an owner (or governor) as prin- cipal and a manager (or public servant) as agent. For the private firm, the owner wants to maximize its profit; for the state- owned firm, the governor wants to maximize social welfare3. In order to maximize the owner’s objective, the owner (or gover- nor) designs the objective function of the manager (or servant) as the incentive scheme. For simplicity, following Vickers (1985), we assume that the manager’s and servant’s objective function (uP and uS) designed by owner and governor are: 1, PPP PP ux 1, SSS SS ux 2The assumption that there is only one private firm in the market is not essential for our results. We can extend the model to an oligopoly market with many firms. 3The oligopoly model with profit-maximizing private firms and welfare- maximizing public firms is called a mixed oligopoly model. For surveys on the mixed oligopoly model, see De Fraja and Delbono (1989) and Vickers and Yarrow (1988). 1For the survey on publi c service motivation, see Perry (2 000).  W. HATADA, T. MIZUNO where i x is the output of firm i, i is the profit of firm i, and i is the incentive scheme chosen by the owner (or gov- ernor) of firm i ()4. ,PS We can interpret i as the degree to which a private or state-owned firm employs workers with public service motiva- tion. The reason is explained as follows. If the firm employs many workers with public service motivation, the firm will tend to provide more public service. In other words, more workers with public service motivation means a larger value of , iiPS . Since the owner or governor can decide whom to hire, they indirectly choose the level of i through their hiring policy. Given the incentive scheme, the manager chooses the output. We consider the quadratic cost of firms: 2 P x for a private firm and 2 S x for a state-owned firm, where denotes the difference in efficiency. Since in many industries, private firms are more efficient than state-owned firm, we assume 01 . We assume that the firms produce homogeneous goods and that they face linear inverse demand: , where z is price. 1zxP S x Under these setting, the profits of firms are: 2 1, P PSP P x xxx 2 1. SPSSS x xx x Social welfare is PS SW CS , where the consumer surplus is 22 PS CSx x . Then, the maximization prob- lems of owner, governor, manager, and servant are max P P , , max S SW max 1 P P PP xxP , and max 1 S SS xxS S , respectively. The timing of the game is as follows. In the first stage, the owner (or governor) of firm ,iPS chooses the incentive scheme i . After the manager (or servant) of firm i observes the incentive scheme, they choose the output i x in the second stage. We solve the model using backward induc- tion. Calculating Equilibrium In the second stage, the maximization problems of manager and servant are: 2 max1 1, P PPPPS PP x x xxx x 2 max1 1. S SSSPS SS x x xxxx The first-order conditions lead to the outcome in the second stage: 34 , 1178 SP P SP x 1221 . 1178 SP S SP x In the first stage, the maximization problems of owner and governor are: 2 max 1, P P SP P x xx x 2 2 2 max 1 2 1. S PS PSP P PSSS xx x xx x xxxx Note that the governor maximizes social welfare SW. Putting the outcome in the second stage into these maximization prob- lems and using the first-order condition, we obtain the outcome in the first stage: 2 41 1 if , 35 86488 3otherwise. 27 32 P 2 2 322 161 if , 28 104648 0ot S herwise. This result is illustrated in Figure 1. In this figure, the pri- vate firm employs more workers with public service motivation if is small, and fewer workers with public service motiva- tion if is large. When the private firm is more efficient, is closer to zero. Hence, the equilibrium structure of employ- ment depends on the difference in the firms’ efficiency. Solving PS for , we have the following proposition. Proposition: PS if and only if 1939 160.3058 . The intuition behind this proposition is explained as follows. In our model, large , iiPS works as a commitment de- vice for large output. When the private firm is quite efficient ( is small), the private firm obtains high gain from this commitment because of large margin (price minus marginal cost). Hence, the private firm with small tends to set a large value for P . This means that the private firm employs many workers with public service motivation. On the other hand, since the state-owned firm maximizes social welfare, it is con- cerned about efficient production. That is, if the private firm is quite efficient, the state-owned firm wants to move production from the state-owned firm to the private firm. For this to hap- pen, the state-owned firm must commit to a small output. In other words, the state-owned firm chooses small S . Hence, in this case, the state-owned firm employs fewer workers with public service motivation. The converse of above argument is 4One might think that the incentive scheme of the state-owned firm should b e a convex combination of the output and social welfare. In this case, the governor of a state-owned firm chooses the incentive scheme that causes the servant to maximize social welfare. That is, the objective functions of the governor and servant are the same in equilibrium. Even so, the owner of the private firm chooses a positive θP. Hence, our main result is robust to this modification. Figure 1. Equilibrium choice of θi. Copyright © 2013 SciRe s . 132  W. HATADA, T. MIZUNO Copyright © 2013 SciRe s . 133 also true: the private firm chooses small P and the state- owned firm chooses large S , when the private firm is ineffi- cient ( is large). Therefore, in the converse case, the state- owned firm employs more workers with public service motiva- tion than does the private firm. Our result can provide an explanation for why some litera- ture reports significant difference in public service motivation between employees in the private and state-owned sectors and other literature does not. Since each study uses data from a different industry, the efficiency gap between private and state-owned firms is different in each study. With regard to our results, in order to obtain robust evidence about the relationship between the type of firm (private versus state-owned) and the level of public service motivation in workers, we need to con- trol for the strategic effect of hiring policy. If we used data on the efficiency gap between private and state-owned firms and estimated the relationship between the type of firm and the level of public service motivation of workers, we could remove this strategic effect of hiring policy from the estimated results. Conclusion We consider a simple model and show that the equilibrium tendency of employing workers with public service motivation depends on the difference between public and private firms’ efficiency levels. Hence, we provide the answer for why previ- ous literature on public service motivation cannot obtain robust evidence on the difference between workers in the public and private sectors. Since we focus on the strategic reason for em- ploying workers with public service motivation, we use a game- theoretic model. However, every industry is not oligopolistic. Therefore, in order to answer our question in competitive in- dustries, we should create a model without strategic interaction. Although this issue is important, it is a consideration for future research. Acknowledgements We thank financial support from University of Nagasaki. The second author gratefully acknowledges financial support from the Ministry of Education, Science, Sports and Culture in the form of a Grant-in-Aid for Young Scientists (B). Needless to say, all remaining errors are ours. REFERENCES De Fraja, G., & Delbono, F. (1989). Alternative strategies of a public enterprise in oligop oly. Oxford Economic Papers, 41, 302-311. Fershtman, C., & Judd, K. L. (1987). Equilibrium incentives in oligop- oly. American Economic Review, 77, 927-940. Gabris, G. T., & Simo, G. (1995). Public sector motivation as an inde- pendent variable affecting career decisions. Public Personnel Man- agement, 24, 33-51. Perry, J. L. (1996). Measuring public service motivation: An assess- ment of construct reliability and validity. Journal of Public Admini- stration Research and Theory, 6, 5-22. http://dx.doi.org/10.1093/oxfordjournals.jpart.a024303 Perry, J. L. (2000). Bringing society in: Toward a theory of public- service motivation. 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