Bureaucratic Responses

This paper’s interest is in understanding how bureaucracies should respond to their clients. I claim that because many services are not priced, bureaucratic responses to their clients will often be the opposite of the reactions of “normal” firms. Specifically, they ignore the most credible complaints from clients, provide the poorest service to clients to value the service most, and require most red tape for clients who already know their needs. University of Chicago Booth School of Business. Email: [email protected]. I am grateful to the editor and seminar participants at Stanford University and the Applied Theory Conference at the University of Chicago for helpful comments. The author declares that he has no relevant material or financial interests that relate to the research described in this paper. People routinely tell exasperated stories of their interactions with bureaucrats. The source of such discontent often lies in their apparently non-sensical behavior: intransigence, digging their heels in, asking for ridiculous amounts of paperwork, and so on. This paper argues that this behavior may arise not for the usual reasons poor performance measures and weak monetary incentives for bureaucrats but rather because many services offered by bureaucracies to their clients are not priced. Specifically, I argue that because public agencies cannot charge for services in the way that other firms do, they often respond in unusual ways to their clients’ needs and information. I consider a setting where a bureaucracy provides a service to a client (or consumer). In the public sector, these are known as service agencies. The backdrop to this work is the role that consumers play in such settings. Consumers are needed for many reasons. First, they have to show up: the take-up of many public services is very low for example. Second, consumers play an important role in solving agency problems by, among other things, pointing out errors. Input from consumers is ubiquitous in the private sector: restaurant diners unhappy with their meals complain to management, people whose Fedex packages go astray alert the company, and so on. Yet they similarly play a key role in the allocation of public services. They provide documentation, advocate for their needs, and complain when decisions do not go their way. Indeed, much of the discussion on improving public agencies revolves around client advocacy. For example, the head of rationing for health care in Britain recently argued that “individual patients should become more knowledgeable about their health conditions, and tell their doctors if they believed they were missing out on treatment which could help them.” and they should “be more pushy with their doctors about drugs to which they are entitled” (Daily Telegraph, 2014). The focus of the paper is on how a bureaucracy responds to its clients. I focus on two “reasonable” predictions about such responses: 1. The more a client marginally values the bureaucracy’s inputs, the more of those inputs are provided. 2. Bureaucracies should be more responsive to concerns of better informed clients than to those more likely to be erroneous. These will both hold when monetary transfers are unrestricted. However, when transfers are See Dixit, 2002, for an excellent review of these issues. I do not address the issue of why many public services are not priced in the way that a profit maximizing firm would. The most natural reason why underpricing arises is that perhaps some clients “don’t have the money” and that pricing excludes some deserving clients.