Political Insulation, Technical Expertise and the Technocrat’s Paradox

It is generally assumed that independent agencies reflect the Congress’ willingness to deal with two different sources of risk that complement each other: political uncertainty regarding the policy implemented, and technical uncertainty regarding the outcome that would be achieved with that policy. This paper claims that such complementariness is true only when the Congress is expecting to capture the benefits of a sound technical decision. If this is not the case, for example when there is a large possibility of a political turnover in the near future, institutional design should follow a dynamic of entrenchment. Here politics and expertise substitute each other, thus reducing the optimal choice of agency independence. This paper illustrates these ideas by comparing the two waves of institutional reforms that occurred in Chile in the 1920’s and the 1980’s. The variance in the level of insulation achieved by each process responds to a key political difference: the first one was conducted through a democratic consensus that was meant to last several decades, whereas the second one was conducted during an authoritarian regime aware that its tenure in power was coming to an end.