International Journal of Communications Law & Policy

THE ECONOMICS OF eGOVERNMENT: A BIRD'S EYE VIEW
By Luc Soete and Rifka Weehuizen

Download the Paper in PDF Format: IJCLP Web-Doc 9-8-2004

Abstract

As in the private sector, introducing information and communication technology (ICT) is expected to increase efficiency and quality also in the public sector. But to what extent is this the case, and under which conditions? The public sector is in principle a monopolist producing public goods, and consequently does not have direct information about efficiency and quality in the form of prices and market share, as is the case for organizations in the market sector. Prices can be seen as 'compressed information' giving feedback about relative performance of an organization. Rather than forms of (semi-)privatization in order to get an information conveying price system, ICT can in principle fulfill the information gap in the public sector due to the lack of prices. ICT can increase transparency of the public sector, reducing transaction costs, and increase feedback about performance and thereby strengthen incentives in the public sector to perform well.
However, more information and communication is not necessarily resulting in more efficiency and better quality. It is important to what extent the information is strengthening the incentive-system in the public sector in the right way. In many public services, attempts to increase efficiency unwantedly results in loss of quality, due to an unfortunate mix of intrinsic and extrinsic incentives. Behavioral economics shows that strengthening extrinsic motivation can "crowd out" intrinsic motivation which forms an important source of efficiency and quality in the public sector.

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