Enhancing synergistic performance through implicit incentive contracts: Addressing the “talent dilemma” in the public sector

Abstract Because of the conflict between the traditional public sector values of egalitarianism and new public management, talent management (TM) in the public sector is more difficult to implement under resource constraints. Equity and efficiency in China's public sector are squeezed out of each other under egalitarianism, resulting in the “ talent dilemma” in which talent works more but does not get more. The “talent dilemma” leads to the fact that it is very attractive for talents to hide their abilities and reduce their efforts in the public sector. In this paper, from the perspective of the “talent dilemma”, we study the contract design problem of the coexistence of heterogeneous talent's adverse selection and moral hazard in the public sector. Specifically, an incentive model combining exclusive and inclusive TM factors under information asymmetry is constructed. The optimal incentive contract is designed to motivate heterogeneous talents to display true information about their abilities and to maintain a maximized level of effort. The results of the study show that the optimal incentive contract can realize the role of information screening and break the “talent dilemma”. These findings provide a theoretical basis for the reform of incentive mechanisms in the public sector.