DP2719 | Working in Public and Private Firms

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We develop a theoretical framework for comparing the style of work in public and private enterprises. We incorporate ?socializing?, as an activity that yields utility for workers and affects a firm?s output, into a simple multitask model of work organization. In contrast with previous models, we establish the two following results. First, the optimal workers? compensation policy displays a larger incentive intensity in the private firm than in the public firm. Second, labour productivity in the private firm may be higher or lower than in the public firm. Both results fit well with the findings of empirical work.