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Public Policy in a Principal-Agent Framework

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  • Michael Bergman
  • Jan-Erik Lane

Abstract

The principal-agent framework is a rapidly developing approach to the analysis of contractual relationships within the private sector. We argue that it should be a promising approach to the analysis of public policy commitments as well. As a matter of fact, it allows the statement of a number of basic public policy problems in terms of an integrated framework. The making and implementation of public policy involve fundamental contractual problems referred to as asymmetric information, moral hazard, bounded rationality and adverse selection. The Niskanen bureau model is a principal-agent model, but its general result is much more limited than previously recognized, which may be shown by employing the same mathematical structure as Niskanen himself uses.

Suggested Citation

  • Michael Bergman & Jan-Erik Lane, 1990. "Public Policy in a Principal-Agent Framework," Journal of Theoretical Politics, , vol. 2(3), pages 339-352, July.
    • Handle: RePEc:sae:jothpo:v:2:y:1990:i:3:p:339-352
    DOI: 10.1177/0951692890002003005
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    References listed on IDEAS

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    1. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    2. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    3. Martin Ricketts, . "The Economics of Business Enterprise," Books, Edward Elgar Publishing, number 3121.
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