Endogenous Institutions in Bureaucratic Compliance Games

Michele Santoni and Silvia Fedeli ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: We consider a set-up where two governments have either conflicting or matching preferences on the provision of differentiated (local) goods supplied by a common monopoly bureau. We develop a two-stage game. At stage-1, the two governments decide whether or not to merge into a single institution. At stage-2, all players simultaneously and independently take their decisions in terms of production and rents, with perfect knowledge of the other players' strategies. We solve the subgame perfect Nash equilibrium of this game, and show that, if the bureau immediately updatesits objective function to institutional changes, then the governments always prefer merging. However, if there is an initial bureaucratic inertia in adjusting the bureau's objective function to the institutional change, then ruling politicians may prefer decentralisation to centralisation, depending on the strategic properties of the compliance game and on their own discounting.

Keywords: Bureaucracy; Common agency; Repeated compliance games (search for similar items in EconPapers)
JEL-codes: D73 (search for similar items in EconPapers)
Date: 2000-01-01
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Journal Article: Endogenous institutions in bureaucratic compliance games (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:mil:wpdepa:2000-03

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