Dynamic Incentives and the Optimal Delegation of Political Power

Eric Le Borgne and Gauti Eggertsson

No 2007/091, IMF Working Papers from International Monetary Fund

Abstract: This paper proposes a theory to explain why a politician delegates policy tasks to a technocrat in an independent institution. It formalizes the rationales for delegation highlighted by Hamilton (1788) and by Blinder (1998). Delegation trades-off the cost of having a possibly incompetent technocrat with a long-term job contract against the benefit of having a technocrat who (i) invests more effort into the specialized policy task and (ii) is better insulated from the whims of public opinion. One natural application of the theory is in the field of monetary policy where the model provides a new theory of central bank independence.

Keywords: WP; mover accent (search for similar items in EconPapers)
Pages: 35
Date: 2007-04-01
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Citations: View citations in EconPapers (6)

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