A Theory of Government Enterprise

Abstract

A model of government enterprise is developed which contrasts the supply behavior of government and proprietary organizations. Refutable implications are derived from an explicit information structure in which the productivity of management must be monitored indirectly and differently for the two types of organizations. Managers of both are assumed to be wealth maximizers. It nevertheless is suggested that the output behavior of government enterprises will differ from that of proprietary enterprises in predictable ways--even where Congress intends the output of government bureaus to be identical to that of proprietary firms. Numerous specific implications are developed and tested with reference to the operation of Veterans' Administration hospitals.

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