Nov 3, 2008

Adverse selection, twisted incentives and social inefficiency at the UN

In a new Rigotnomics Working paper, I compare the UN job market to the one for blood donations. Drawing parallels, I show how high salaries lead to an adverse selection of employees and to the destruction of good employees' true motives.

7 comments:

Katya said...

i disagree. at the end of the day, no matter how much you care about the world, you need to pay your rent, food and kids' tuition.

why don't you look at the structure of the organization itself? do more motivated ppl go straight to NGOs working in the field in Africa because there is less bureaucracy and they can make bigger impact there or because they
are afraid that UN high salaries will skew their incentives?

World Bank reformed its pay scheme down about eight years ago... Do you think it became more efficient?

Pierre-Louis said...

thanks Katya! I think first of all that more motivated people do go on the field (even though some people go on the field for fucked up reasons sometimes)...
and i think at least by reducing salaries the WB is wasting less money!

but this is funny "you need to pay your rent, food and kids' tuition. " true...but do you need to pay for your BMW, your jewelry, your house in the alps???

David said...

Hi, I quickly read your post about the UN. I dont know what you are going to do after your studies, but if i get you well, and if you stay in the public sector or related (like academic sector in Switzerland) you are going to work for free because you dont want an economic incentive for creating social capital...

Then I haven't read any proven case of corruption at the UN in Geneva recently and i dont remember any... what did you have in mind?

I passed the UN Competitive Examination a couple of years ago. Quite a difficult exam actually. I am not planning to go anytime soon at the UN, simply because I am greedy and I 'll make more money by working into the asset management sector and smart people are well rewarded in that field. Plus, I have only one goal make money and no conflicting interest between me and that goal!


Basically I think the problem of the public sector is that you have maybe too much competition to enter but enough to keep you on the run once you are in. And this may attract socially irresponsible people (aka your luxury seekers). To achieve competition into the public sector, just kill the politics!

in fact achieving social and economic optimum often conflicts with politics!

Nice try

Daniela said...
This comment has been removed by the author.
Daniela said...

Competition between agencies is interesting too. I have heard that UNCTAD pays slightly better than the WTO (at least that was an issue at the WTO 4 or 5 years ago, maybe solved by now), but the WTO is definitely more meaningful and powerful (although much smaller).

So adverse selection in the pool of applicants should be a problem for UNCTAD, less so for the WTO, to which the better elements would go (I have met a few WTO people with former jobs at UNCTAD- the former WTO DG being the counterexample, but he's a political appointee).

The tough selection process does not compensate for this loss at the top end.

I wonder if in the long run, the dynamics of this process lead to some vicious/virtuous circle of UNCTAD irrelevance/WTO relevance.

And yes, I am biased :-)

Pierre-Louis said...

David,

Thanks for your comments! Im glad to hear we have some readers at the UN!
Just one quick example of corruption at UN geneva: the WIPO building that wasnt built because the money had dissapeared for 2 years...
But there's one thing I dont understand about your comment, how does competion that is keeping you on the run once you are inside the UN can attarct socially irrepsonsible people???

And last but not least, I focused my argument on high salaries because economists (and wannabe economists as myself) look for varaibles they can affect (such as wages, contracts duration etc...)and see what would be the impact of cush policies...we look for precise policy instruments...saying that poltics is the problem doesn't help a bit in solving the problem...so we ask oursleves what could we actually change and what would be the effec of that...
Daniela, I guess the WTO is way better than UNCTAD because they had lowe salaries! possible?

Daniela said...

By the way Pierre-Louis. I agree with Katya, you need to pay your mortgage, the nanny, the van, etc.

To get the incentives right and avoid adverse selection, at an agency like UNHCR, in your career there you are required to spend some time in refugees or conflict zones (two years minimum), or else you are fired or not promoted.

All this to say that to get the brightest and most motivated people you need a mix of incentives, the carrot and the stick. Those who take the stick for a carrot (spending two years in Darfur for example) will apply, and get the double reward. Those really put off by the stick (your "luxury seekers") will abstain.

In would be nice to model this. In insurance policies you have the premium and the deductible to avoid adverse selection. In UN agencies there could be some scheme whereby those willing to move to conflict zones (the deductible) get a better pay (the premium).

I do wonder what could be the stick for UNCTAD. Maybe they just have to reinvent themselves and get a new sense of purpose. Those years when UNCTAD Conferences were important (remember the Group of 77) are long gone.

And NO, I don't think that the WTO is better because salaries are lower! It's the sense of purpose, the WTO agreements, which effectively regulate international trade. By working there you definitely feel like having some influence in the world.