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Delegation versus Communication in the Organization of Government

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Abstract

When a government creates an agency to gather information relevant to policymaking, it faces two critical organizational questions: whether the agency should be given authority to decide on policy or merely supply advice, and what should the policy goals of the agency be. Existing literature on the first question is unable to address the second, because the question of authority becomes moot if the government can simply replicate its preferences within the agency. In contrast, this paper examines both questions within a model of policymaking under time inconsistency, a setting in which the government has a well-known incentive to create an agency with preferences that differ from its own. Thus, our framework permits a meaningful analysis of delegation versus communication with an endogenously chosen agent. The first main finding of the paper is that the government can do equally well with a strategic choice of agent, from which it solicits advice, instead of delegating authority, as long as the time inconsistency problem is not too severe. The second main finding is that the government may strictly prefer seeking advice to delegating authority if there is prior uncertainty with respect to what is the optimal policy. Classification-JEL Codes: D02, D23, D73, D8, H1

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~06-06-04.

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Date of creation: 04 Jun 2006
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Handle: RePEc:geo:guwopa:gueconwpa~06-06-04

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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Keywords: Political Economy; Delegation; Communication; Organizational Design; Time Inconsistency.;

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  1. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 2004. "Transferable control," ULB Institutional Repository 2013/9647, ULB -- Universite Libre de Bruxelles.
  3. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  4. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 11.
  5. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
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  7. Anders Olofsgârd, 2004. "Secessions and Political Extremism: Why Regional Referenda Do Not Solve the Problem," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 805-832, 09.
  8. Alberto Alesina & Guido Tabellini, 2005. "Why do Politicians Delegate?," Harvard Institute of Economic Research Working Papers 2079, Harvard - Institute of Economic Research.
  9. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
  10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  11. Hao Li & Wing Suen, 2004. "Delegating Decisions to Experts," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S311-S335, February.
  12. Besley, Timothy & Coate, Stephen, 2001. "Lobbying and Welfare in a Representative Democracy," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 67-82, January.
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Cited by:
  1. Perino, Grischa, 2010. "How delegation improves commitment," Economics Letters, Elsevier, vol. 106(2), pages 137-139, February.

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