Bureaucracy

Selection provides a way of influencing the type of bureaucrats in office. Given the high firing costs and limited formal incentives used in bureaucracies, as we emphasised in section 2, affecting selection is a potentially powerful means of changing the performance of a bureaucracy. A first important dimension on which bureaucrats ought to be selected is on their talent and competence. In this regard, a major challenge throughout history has been the fight against nepotism in bureaucratic recruitment (Xu 2018, Riano 2022). The second dimension is selection on motivation to pursue the organisational mission. As emphasised by Max Weber (1922) in his conception of bureaucracy, while talent and competence impact the output associated with effort, bureaucrats' public-service motivation affects their marginal cost of effort.

Given the importance of selection in driving bureaucratic performance, it is not surprising that a large literature on bureaucrat selection has emerged. It has two main strands. The first is concerned with how to attract the “right” type of individuals to the public sector. A key challenge concerns a potential trade-off between mission and financial motivation. In contrast to private firms where the main goal is profit-maximisation, public organisations often pursue a wider range of objectives, involving elements of welfare maximisation or attributes of the public goods provided. Individuals who select into the public sector thus may not only care about remuneration, but also the mission of the organisation (see, for example, Besley and Ghatak 2005, Le Grand 2003, and Tirole 1994). Existing work is mostly experimental and focused on front-line providers, varying advertised job traits shown to prospective candidates at time of application such as salaries (Dal Bó et al. 2013, Deserranno 2019), or the salience of the prosocial vs. career nature of the task (Ashraf and Bandiera 2018).

A second strand of work centres around the balance between rules vs. discretion in the selection process. Traditionally, bureaucrats were selected to serve “at the pleasure” of the ruler or politician, giving the principal full discretion in the selection process. At the opposite end of the spectrum is rule-based selection, where the principal ties its hands using a selection rule such as a competitively-based entry exam. Today, most bureaucracies are, at least on paper, characterised by rule-based selection for the vast majority of bureaucrats, with only the apex positions filled by political appointees.

In deciding between rules and discretion, the theoretical trade-off lies between balancing the value of (soft) private information against bias: politicians can use discretion to appoint the best matches, but can also use discretion to favour those in their network, sometimes for private gain. While a rule-based selection limits such favouritism, much depends on the details of the rule and whether it effectively screens on traits that can predict performance. Even though they are used extensively, there is little evidence on the effects of competitive exams on the selection of civil servants. The research that exists suggests that variation in entry exam scores are predictive of later performance (Dahis et al. 2023, Bertrand et al. 2020), but relies on variation in test scores conditional on being selected, thus leaving the extensive margin unexplored. Moreira and Pérez (2022a) study how the Pendleton Act shaped the composition of US customs officers.[1]1. In a follow-up study, Moreira and Pérez (2022b) study the introduction of the Pendleton Act in DC. They find that the reform increased the representation of “educated outsiders”, but reduced the share of lower-SES individuals.   While they find evidence that competitive exams led to more hiring of individuals with higher previous occupational status, they do not find any impact on performance. In a complementary study, Aneja and Xu (2023) focus on the implementation of the Pendleton Act across US Post Offices. They find a positive effect on postal performance but no significant changes in the observable traits of newly recruited employees, concluding that selection is unlikely to be a major channel through which the reform worked. Rather, they argue that the Pendleton Act limited the ability of politicians to interfere with the careers of bureaucrats, thus enabling stabler careers. Finally, Otero and Munoz (2022) find that the introduction of a competitive selection process for public hospital CEOs in Chile reduced hospital mortality and more efficient use of medical resources. This effect was driven by the higher managerial qualifications of the new CEOs (who, before the reform, mainly tended to be doctors).

When it comes to discretion, existing work has documented negative effects on the hire quality. In Brazil, appointments of politically aligned public servants are less qualified (Colonnelli et al. 2020); in the administration of the British Empire, governors connected to the minister are allocated to more favourable positions while performing worse under a system of discretionary appointments (Xu 2018). Increasing impartiality in the hiring process of the Brazilian public sector has been shown to increase the likelihood of selecting high-ability women, thus reducing the gender gap in hiring (Mocanu 2023). Increasing impartiality in the promotion system prompts an increase in the effort and promotion probability of  high-ability health workers in Sierra Leone (Deserranno et al. 2022). These results resonate with the findings in private sector settings, where managers who hire against test recommendations select applicants with lower subsequent retention (Hoffman et al. 2018). Two papers document positive selection effects under a discretionary system of appointment. Weaver (2021) collects rich data on side payments for public sector positions in healthcare. In the developing country setting under study, he finds that greater willingness to pay is correlated with quality, resulting in positive selection. Another paper that shows positive selection effects of patronage is Voth and Xu (2022), who show that Admirals leverage their social connections to promote better officers when facing competitive pressure during times of war. This resonates with work in labour economics that has documented the informational value of referrals in hiring (Burks et al. 2015). There is, however, limited work that connects both strands of the literature by studying how selection rules affect the quality of the final hire by endogenously changing the applicant pool.

Overall, the study of the trade-off between rule-based selection and discretion remains a vibrant research area. Given the difficulty of randomising hiring practices, however, most evidence has been observational. 

References

Aneja, A, and G Xu (2023), “Strengthening State Capacity: Civil Service Reform and Public Sector Performance during the Gilded Age”, Working Paper.

Ashraf, N, and O Bandiera (2018), “Social Incentives in Organizations”, Annual Review of Economics, 10: 439–463.

Bertrand, M, R Burgess, A Chawla, and G Xu (2020), “The Glittering Prizes: Career Incentives and Bureaucrat Performance”, Review of Economic Studies, 87(2): 626–655.

Besley, T, and M Ghatak (2005), “Competition and Incentives with Motivated Agents”, American Economic Review, 95(3): 616–636.

Burks, S V, B Cowgill, M Hoffman, and M Housman (2015), “The Value of Hiring through Employee Referrals”, Quarterly Journal of Economics, 130(2): 805–839.

Colonnelli, E, M Prem, and E Teso (2020), “Patronage and Selection in Public Sector Organizations”, American Economic Review, 110(10): 3071–3099.

Dahis, R, L Schiavon, and T Scot (2023), “Selecting Top Bureaucrats: Admission Exams and Performance in Brazil”, Review of Economics and Statistics, 1-47.

Dal Bó, E, F Finan, and M A Rossi (2013), “Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service”, Quarterly Journal of Economics, 128(3): 1169–1218.

Deserranno, E (2019), “Financial incentives as signals: experimental evidence from the recruitment of village promoters in Uganda”, American Economic Journal: Applied Economics, 11(1): 277–317.

Deserranno, E, G Leon, and P Kastrau (2022), "Promotions and Productivity: The Role of Meritocracy and Pay Progression in the Public Sector", Working Paper.

Hoffman, M, L B Kahn, and D Li (2018), “Discretion in hiring”, Quarterly Journal of Economics, 133(2): 765–800.

Le Grand, J (2003), Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawns and Queens, Oxford University Press.

Mocanu, T (2023), “Designing Gender Equity: Evidence from Hiring Practices and Committees”, mimeo.

Moreira, D, and S Pérez (2022a), “Civil Service Reform and Organizational Practices: Evidence from the Pendleton Act”, Working Paper.

Moreira, D, and S Pérez (2022b), “Who Benefits from Meritocracy?”, Working Paper.

Otero, C, and P Muñoz (2022), “Managers and Public Hospital Performance”, mimeo.

Riano, J (2022), “Bureaucratic Nepotism”, Working Paper.

Tirole, J (1994), “The Internal Organization of Government”, Oxford Economic Papers, 49(1): 1-29.

Voth, J, and G Xu (2022), “Discretion and Destruction: Promotions, Performance, and Patronage in the Royal Navy”, Working Paper.

Weaver, J (2021), “Jobs for Sale: Corruption and Misallocation in Hiring”, American Economic Review, 111(10): 3093-3122.

Weber, M (1922), Economy and Society, 4th edition, Tübingen.

Xu, G (2018), “The Costs of Patronage: Evidence from the British Empire”, American Economic Review, 108(11): 3170–98.