4.4.1.

Bueraucracy

We could suppose that the bueraucrat is a selfless public

servant, but why should he/she be any different than the
others?

Simple model:
y: output
B(y): budget, where B’(y) > 0; B’’(y) < 0
C(y): costs, where C’(y) > 0; C’’(y) > 0

Assume that government has no information about the true

production costs

Problem of the bueraucrat:

max B(y)
s.t. B(y) = C(y)

L  B ( y )    B ( y )  C ( y ) (4.6)

B' ( y b ) 
 1
C'( y b ) (4.7)
Optimal choice at B’ < C’

B’, C’

a b

y* yb
Ex: 4.25