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Motivating Loyal Bureaucrats in Sequential Agency

Author

Listed:
  • Rodivilov Alexander

    (School of Business, 33694 Stevens Institute of Technology , Hoboken, NJ 07030, USA)

  • Shin Dongsoo

    (Department of Economics, Leavey School of Business, Santa Clara University, Santa Clara, CA 95053, USA)

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.

Suggested Citation

  • Rodivilov Alexander & Shin Dongsoo, 2024. "Motivating Loyal Bureaucrats in Sequential Agency," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(2), pages 519-553.
    • Handle: RePEc:bpj:bejtec:v:24:y:2024:i:2:p:519-553:n:1007
    DOI: 10.1515/bejte-2023-0122
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    More about this item

    Keywords

    principal – agent; false moral hazard; sequential agency;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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