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Yardstick competition and political agency problems

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  • BELLEFLAMME, Paul
  • HINDRIKS, Jean

Abstract

This paper analyzes the role of yardstick competition for improving political decisions. We examine how performance comparisons across jurisdictions affect the agency problem resulting from uncertainty about politicians (adverse selection) and their policies (moral hazard). We study two forms of inefficiency: the provision of wasteful project and the failure to provide useful project .We find a general neutrality result: yardstick competition does not affect the likelihood of fully efficient equilibria for any correlation (with a discontinuity at perfect correlation). We also find that yardstick competition has no effect on the likelihood of inefficient equilibria in which politicians refrain from implementing valuable projects. However, performance comparisons makes it less likely to have an equilibrium where bad politicians in both jurisdictions use wasteful projects as inefficient transfer forms.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002029.

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Date of creation: 00 May 2002
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Handle: RePEc:cor:louvco:2002029

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Keywords: electoral accountability; Yardstick competition;

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  1. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
  2. Alberto Alesina & Reza Baqir & William Easterly, 1998. "Redistributive Public Employment," NBER Working Papers 6746, National Bureau of Economic Research, Inc.
  3. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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