Public service motivation is often considered as an argument for low-powered incentive schemes in the public sector. In this paper, we characterize the optimal contract between a public regulator and an altruistic agent according to the degree α of public service motivation, when the type of the public service consumer is privately observed. We show that the requested effort is nondecreasing with α and can be higher than the first-best level. Moreover, we show that the agent is put on a high-powered contract when some customers are served but that this contract is associated with different types of consumers according to α. In contrast, the agent is never put on a cost-plus contract. Finally, we show that the first-best allocation can be achieved under budget balance for a degree of altruism higher than a threshold that we characterize.
