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Comments on "Reforming an Institutional Culture: A Model of Motivated Agents and Collective Reputation"

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Comments by Elena Paltseva on paper "Reforming an Institutional Culture: A Model of Motivated Agents and Collective Reputation" presented by Justin Valasek at the SITE Corruption Conference, 31 August 2015.

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Comments on "Reforming an Institutional Culture: A Model of Motivated Agents and Collective Reputation"

  1. 1. Discussion of ”Reforming an Institutional Culture: A Model of Motivated Agents and Collective Reputation” by Justin Valasek Elena  Paltseva,  SITE SITE  Academic  Conference  2015 "ʺFighting  Corruption  in  Developing  and  Transition  Countries"ʺ
  2. 2. Short overview of the paper •  Looks  into  the  labor  market  sorting   –  mission-­‐‑oriented  institution  vs.  ”regular”  private  sector –  motivated  and  non-­‐‑motivated  agents •  Non-­‐‑motivated  ones  only  care  about  wage •  Motivated  ones  also  care  about  the  reputation  of  the  institution   •  Main  question     –  Statics:  what  are  the  sorting  outcomes  in  terms  of  agents   selection  and  institutional  reputation? –  Dynamics:  when  and  how  can  we  transit  from  a  “bad”   institutional  outcome  to  a  “good”  one? 2
  3. 3. Short overview of the paper-2 •  Results –  Statics:  there  are  two  types  of  equilibria:   •  BAD:  Low-­‐‑reputation  high-­‐‑wage  equilibrium   –  fewer  motivated  guys  work  in  a  mission-­‐‑oriented  institution  because   they  (correctly)  believe  they  will  be  few,  and  relative  wage  there  is  high •  GOOD:  High-­‐‑reputation  low-­‐‑wage  equilibrium –  Dynamics:  transition  from  a  bad  equilibrium  to  a  good  one: •  Is  only  possible  if  agents  are  sufficiently  motivated •  Requires  a  non-­‐‑monotonic  wage  path  (first  raise  it  and  then  lower  it) •  Contribution  of  the  paper –  offers  dynamics  helping  to  reconcile  two  opposing  views  on  the  effect  of   higher  wages  on  motivation •  There  is  empirical  evidence  for  both  signs  of  the  effect –  Jastins’s  paper:  it  all  depends  on  which  equilibrium  you  are  in!   •  what  is  the  current  composition  of  motivated/non-­‐‑motivated  agents 3
  4. 4. Short overview of the paper-3 •  Very  nice  paper –  Smartly  crafted  model –  Interesting  results •  Still  I  have  a  few  questions/comments 4
  5. 5. Q1: Equilibrium selection •  One  of  the  key  assumptions  yielding  model  results  is  the   equilibrium  selection –  Static  model:  Many  equilibria  in  the  model   •  for  each  public  sector  wage  there  is  one  or  more  equilibria –  Selection:  choose  eq.  clearing  labor  demand  from  mission  institution. •  Static  model:  yields  key  eq.  dichotomy  (high  motivation+low  wage  vs.  low  motivation +high  wage)   •  Dynamic  model:  used  as  a  steady  state  requirement  (transition  path  admits  non-­‐‑balanced   labor  demand) •  Why  would  the  mission-­‐‑oriented  institution  target  this  goal? –  as  opposed  to  e.g.  efficiency,  or  output  maximization,  or  profit,  etc. •  Is  this  indeed  true  (or  close  to  being  true)  in  reality? –  My  impression  is  that  in  (some)  developing  countries  there  is  excess  demand  for   public  sector  jobs  (?)   –  And  maybe  even  in  developed  (e.g.,  Krueger  (1998)  for  USA) 5
  6. 6. Q2: Modelling assumptions •  What  if  there  is  a  positive  correlation  in  productivity  between   public  and  private  sector?(i.e.,  more  talented  guys  are  beler  at   any  kind  of  job) –  Then  low  wage-­‐‑high  motivation  equilibrium  may  no  longer  be  ”good”   as  it  would  select  motivated  but  not-­‐‑very-­‐‑productive  guys •  What  if  a  mission-­‐‑oriented  firm  can  learn  about  the   motivation  of  its  employees  once  they  work  for  it  long  enough –  Would,  perhaps,  be  complementary  to  wage  increase  to  ”improve  the   reputation”  of  the  firm  by  increasing  the  motivated/non-­‐‑motivated   worker  ratio –  Could  make  transition  cheaper  and  (questionably)  faster –  Even  imperfect  learning  may  help 6
  7. 7. Q3: Objectives and dynamic transition •  Objective  of  the  mission-­‐‑oriented  institution  is  said  to  be   maximization  of  (NPV  of)  profits   •  With  this  in  mind,  why  only  look  at  transitions  from  ”bad”  to   ”good”  equilibria? –  Steady  state:  is  it  obvious  that  the  “good”  labor-­‐‑market  clearing   equilibrium  is  beler  than  a  ”good”  labor-­‐‑market  non-­‐‑clearing  one?   •  that  is,  why  profit  maximization  should  lead  to  convergence  to  (”good”)  steady  state?   Maybe  e.g.  some  kind  of  oscillation  is  beler? •  In  other  words,  it  is  again  a  question  on  how  and  why  the  labor  market  demand  enters  the   utility  of  mission-­‐‑oriented  institution –  Transition:  the  paper  chooses  not  to  explicitly  seek  which  transition  path   maximizes  profit •  Why? •  If  we  instead  choose  to  minimize  costs,  or  to  speed  up  transition,  how   is  it  related  to  profit  maximization?  Same  question  about  commitment 7
  8. 8. Further comments •  The  average  public  sector  wage  in  the  model  is  always  below   the  average  wage  of  private  sector –  Not  really  true  in  reality  –  many  countries  have  public  wage  premium •  It  would  be  nice  to  have  stylized  ”systematization”  of  existing   empirical  evidence  by  factors  suggested  by  the  model   –  E.g.,  do  we  observe  higher  relative  public  sector  wage  in  studies/ countries  where  a  wage  increase  is  found  to  increase  motivation? –  If  we  looks  at  successful  transitions,  e.g.  Sweden  since  1800th,  was  the   relative  public  sector  wage  path  non-­‐‑monotonic,  as  suggested  by  the   model? 8
  9. 9. Further comments •  Model  rules  out  ”behavioural”  choices  –  that  is,  all  non-­‐‑ motivated  guys  would  be  ”corrupt”  if  hired  by  mission-­‐‑ oriented  institution –  useful  simplification  for  model  solving,  but  to  which  extent  social   norms  are  reflecting  inherited  characteristics  and  not  behaviour? –  This  may  have  HUGE  policy  implications –  It  is  touched  upon  in  the  discussion,  but  perhaps  it  can  also  be  modelled   in?   9

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