Motivating Loyal Bureaucrats in Sequential Agency

Alexander Rodivilov and Shin Dongsoo ()
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Shin Dongsoo: Department of Economics, Leavey School of Business, Santa Clara University, Santa Clara, CA 95053, USA

The B.E. Journal of Theoretical Economics, 2024, vol. 24, issue 2, 519-553

Abstract: We study a principal–agent model in which a legislature and a bureaucrat sequentially play the principal’s role. In the first stage, the legislature offers a menu of transfer payments to the bureaucrat for implementing a public project. In the second stage, the bureaucrat offers a menu of the project attribute levels to the legislature. Then, the legislature decides whether to go forward with the project and aggregates information on the public’s valuation of the project. The key trade-off in this paper is information versus the bureaucrat’s loyalty. We show that when the bureaucrat is loyal enough to the public, taking advantage of his loyalty requires inducing him to make his decision independent of the public’s valuation.

Keywords: principal – agent; false moral hazard; sequential agency (search for similar items in EconPapers)
JEL-codes: D82 D86 H11 H40 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejte-2023-0122

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