Transparency, incentives and incumbent performance

Rommel Rabanal
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Rommel Rabanal: School of Economics, University of the Philippines Diliman

No 200509, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: An expected utility model is used to analyze the allocation decision of an incumbent politician in dividing public funds between expenditures on public goods and pure rents. Comparative statics analysis reveals that while the result for improvements in transparency is ambiguous in terms of simultaneously improving public goods provision and reducing rent-extraction, fixing the incentives scheme faced by the politician while in office yields unambiguously welfare-increasing outcomes. As in any contract under unobservable effort, it is not practicable to insist that the agent reveal his true effort level through increased transparency. Rather, the optimal contract must specify proper incentives and a minimum contractible level of information that accurately relates observed outcomes to the actual effort level exerted by the agent. The paper concludes with empirical results from a panel data set of 115 cities in the Philippines for the years 1996-2000 supporting the predictions of the theoretical model.

Keywords: transparency; incumbent performance; rent-seeking (search for similar items in EconPapers)
JEL-codes: D72 D80 H00 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2005-09
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Published as UPSE Discussion Paper No. 2005-09, September 2005

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