Whenever the economic efficiency of institutional structures is examined, the allocation of resources through the competitive market is used as a benchmark to judge efficiency. Because of the desirable characteristics of the competitive outcome, there is a natural tendency to ascribe these same characteristics to the competitive process. This tendency may be -in part, anyway -what has prompted William Niskanen (1971), after analyzing some causes of bureaucratic inefficiency, to recommend that bureaucracies be restructured to more closely resemble "competitive markets. However, when resources are allocated through a bureaucracy, the analog to a competitive market outcome is not necessarily most efficiently produced by an analog to the competitive market process.
This point was suggested by Earl Thompson. After remarking on Niskanen's suggestion to increase the competitiveness of bureaus, Thompson (1973, p. 95) said, "What an economist can profitably contribute to improving governmental efficiency are incentive systems which will induce more efficient behavior from our bureaucrats without requiring markets or elections." Although Niskanen's model of bureaucracy has had a large impact on the analysis of bureaucracy, there have been few (if any) suggestions for improvement of incentives along the lines suggested by Thompson. This paper will work within the framework developed by Niskanen to suggest a simple institutional change which would cause the Niskaken-type bureau to produce at the analog to the competitive market outcome.