Considerable academic and popular criticism is directed at the way public administration is organized and how it functions. Many claim that the public sector lacks the incentives for effective performance and that there is a disturbing lack of accountability to the elected representatives whom administrators are supposed to serve. Given these common perceptions, it is a real puzzle to find that the administrative arrangements that shape administrators' incentives and determine their accountabilities are so common and so persistent. It is even more of a puzzle given that the lack of any neat separation between policy and administration means that administrative decisions influence policy outcomes. If these arrangements are so bad, why do we find them in so many jurisdictions and why have they persisted for so long? This book develops a theory to explain key institutional characteristics of the modern administrative machinery of government. It is part of a growing appreciation of the role of institutions in both political science and economics.

Just as the private sector includes corporations, partnerships, and non-profit organizations, the public sector is made up of different forms of organization, each with its distinctive characteristics. In the regulatory arena, laws can be administered by the courts, independent regulatory commissions, or executive agencies. When it comes to the production of goods and services, legislators typically turn to tax-funded bureaus with personnel policies determined by civil service legislation. Sometimes, however, they use state-owned enterprises (SOEs), which are primarily funded by sales revenues and organized along more commercial lines.