“Discretionary profits” in the public sector

Much of organizational design is meant to reduce the chances that managers do things that damage the organization – so they don’t act in “opportunistic” ways.

“Discretionary profits” … are expenditures on stuff as a source of power, status, prestige, or professional achievement. Williamson assumes in this context that staff expenditures have an influence not on production but on sales, and they they affect the level of profits.

From Furbotn and Richter (2000).

The same “reduced profits” show up in the public sector, not through the lack of production of public service, but through the lack of delivery to truly affected interests. It’s the counterfactual we find it difficult to observe – the deserving people not served.