Motivating Loyal Bureaucrats in Sequential Agency

Alexander Rodivilov, Dongsoo Shin

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)519-553
Number of pages35
JournalB.E. Journal of Theoretical Economics
Volume24
Issue number2
DOIs
StatePublished - 1 Jun 2024

Keywords

  • false moral hazard
  • principal - agent
  • sequential agency

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