The Difficulties of Applying Management Systems Based on High-Powered Incentives in State Corporations

Abstract

The article discusses the possible negative effects of the implementation of the market motivation methods in the public sector and management systems of state corporations. In particular, we focus on the introduction of performance assessments of civil servants which are based on a number of quantitative indicators. There is a belief that high-powered incentives can make this relationship closer. However, such incentives can lead to the negative contract externalities which had been analyzed for the past few decades in the framework of the contract theory. Applying such motivation practices is not always successful even in the business environment; we assume that such practices are not suitable for the public sector. It is also worth mentioning that the performance indicators, the choice of which is left to officials, have only one positive feature - observability, and thus have a weak connection with the final result of the evaluated process.