arises because the manager is incompletely altruistic: she chooses the wrong effort
and endogenous quality. The excess administrative expenditure 14 fails to reflect Ž .
the welfare loss for two reasons. First, it does not allow for the fact that quality as
well as effort diverge from the social optimum cost. If q is in fact endogenous in
the sense that it is under the control of the manager, we have to take account of the
first type of error in using 14 as a measure of 15 .