The closer the better? Institutional distance and information blurring in a political agency model

Government accountability increases with voters' proximity to policy-makers. Decentralization reforms implemented in many countries in the last twenty years are based on this principle. We present a political agency model that challenges this view and shows that the effects of increasing proximity may depend on the institutional context. In particular, the presence of rent-seeking politicians and heterogeneity in voters' political awareness produce three distinct optimal levels of decentralization. Furthermore, optimal distance depends on the capacity of rent-seeking incumbents to blur information available to voters. When the incumbent reacts to increasing proximity with more blurring activity, the optimal distance increases. Accordingly, less decentralization is preferable.