Collective Punishments: Incentives and Examinations in Organisations

The paper investigates the impact of examinations on incentives and decision-making in bureaucracies and similar organisations. When one amongst a group of bureaucrats can be appointed to give policy advice whose outcome affects all parties, with advisory ability increasing in personal effort, a free-riding problem is generated if preferences are aligned, leading to an ex ante inefficiency. Free-riding may be mitigated by an examination with a pass-mark, i.e., a minimum ability requirement as a necessary criterion for advisory appointment. By collectively punishing all experts when maximal ability is low, it raises private incentive to enhance ability, and improves decision quality.