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Dynamic Incentives and the Optimal Delegation of Political Power

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Author Info

  • Eric Le Borgne
  • Gauti B. Eggertsson

Abstract

This paper proposes a theory to explain why a politician delegates policy tasks to a technocrat in an independent institution. It formalizes the rationales for delegation highlighted by Hamilton (1788) and by Blinder (1998). Delegation trades-off the cost of having a possibly incompetent technocrat with a long-term job contract against the benefit of having a technocrat who (i) invests more effort into the specialized policy task and (ii) is better insulated from the whims of public opinion. One natural application of the theory is in the field of monetary policy where the model provides a new theory of central bank independence.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/91.

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Length: 35
Date of creation: 01 Apr 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/91

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Related research

Keywords: Governance; public opinion; inflation; central bank; monetary policy; political economy; political power; monetary fund; political pressure; political office; monetary target; intermediate monetary target;

This paper has been announced in the following NEP Reports:

References

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  1. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  2. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
  3. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
  4. Ben Lockwood & Eric Le Borgne, 2003. "Do Elections Always Motivate Incumbents? Experimentation vs. Career Concerns," IMF Working Papers 03/57, International Monetary Fund.
  5. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," Economics Working Papers 0020, Institute for Advanced Study, School of Social Science.
  6. Stephen Coate & Timothy Besley, 2000. "Elected versus Appointed Regulators: Theory and Evidence," NBER Working Papers 7579, National Bureau of Economic Research, Inc.
  7. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  8. 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.
  9. Gauti B. Eggertsson, 2003. "How to Fight Deflation in a Liquidity Trap," IMF Working Papers 03/64, International Monetary Fund.
  10. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Citations

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Cited by:
  1. Jordi Blanes i Vidal & Clare Leaver, 2008. "Pandering Judges," STICERD - Economic Organisation and Public Policy Discussion Papers Series 002, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Clare Leaver & Jordi Blanes i Vidal, 2008. "Pandering Judges," Economics Series Working Papers 390, University of Oxford, Department of Economics.
  3. Artur Grigoryan, 2011. "Incentives and the Delegation of Decision Making Power in Sovereign Wealth Funds," MAGKS Papers on Economics 201117, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Artur Grigoryan, 2011. "Incentives and the delegation of decision making power in sovereign wealth funds," Volkswirtschaftliche Diskussionsbeiträge 146-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.

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