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Loyalty and competence: Empirical evidence from public agencies


  • Alexander F. Wagner

    (University of Zurich and swiss Finance Institute)


Recent organizational theories suggest that there is a tradeoff between loyalty and competence. This paper tests several such theories in the context of public agencies. Prime ministers, chancellors, and kings alike need to secure the (efficient or inefficient) loyalty of their agencies, such as support in important policy proposals or low corruption. They are also interested in agencies’ levels of competence. I find that governments have highly competent officials in their agencies (1) where officials have few private sector contacts, (2) where officials can extract few bribes, (3) where careers in agencies are expected to be long-lasting, and (4) where the agencies are powerful, i.e., where their loyalty is important. This set of findings fits best with a theory of loyalty as a noncontractible behavior, implying that too competent staff cannot be induced to loyalty unless loyalty is highly valued by the government. Other theories are either rejected or are less plausible because they cannot explain the complete set of observed regularities.

Suggested Citation

  • Alexander F. Wagner, 2005. "Loyalty and competence: Empirical evidence from public agencies," Swiss Finance Institute Research Paper Series 06-34, Swiss Finance Institute, revised Oct 2006.
  • Handle: RePEc:chf:rpseri:rp0634

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    More about this item


    Loyalty; self-enforcing contracts; public agencies; corporate finance;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H1 - Public Economics - - Structure and Scope of Government
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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