Rational Crowd-Pleasing and Democratic Accountability
Politicians frequently undertake projects whose budgetary costs are disproportionate to the benefits they create for the voters or shareholders those decision-makers represent. When they are not the result of simple random mistakes, such wasteful projects are often attributed to weak mechanisms of accountability, such as inadequate opportunities for voters to exercise oversight, or capture of the political governance mechanism by special interests. This paper argues instead that wasteful spending may be a by-product of the accountability of politicians to their voters, not a symptom of its weakness or absence. Specifically, we develop a model in which agents have to do two things: first, search for projects and secondly, screen them to decide which ones to fund. Funding projects that may be wasteful is a way for agents to signal their diligence, and principals who cannot observe project quality directly will rationally reward them for this provided the benefits of diligence exceed the expected costs of waste. We introduce mechanisms of value-for-money auditing and show how politicians and managers may publicly resist them while sometimes privately welcoming them; auditing may, however, weaken incentives for agents to exercise control of their own on project choices, since it now becomes less costly for them to signal diligence. We extend the model to show that the same politicians who are over-enthusiastic with respect to the funding of wasteful projects may also be too timid with respect to what we call "divisive" projects, namely those that impose localized costs even if they create generalized benefits; many economic reform policies have this character. We discuss implications for the auditing of public spending projects, and for controls on public expenditure such as those embodied in the European Union state aid rules, the subsidy provisions of the World Trade Organization, or the conditionality of loans from the World Bank and other international organizations. We also discuss analogies with corporate governance.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Jan 2010|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007.
"Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?,"
The Review of Economics and Statistics,
MIT Press, vol. 89(3), pages 482-496, August.
- Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," NBER Working Papers 8724, National Bureau of Economic Research, Inc.
- Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," Working Papers 452, Queen Mary University of London, School of Economics and Finance.
- Haskel, Jonathan & Pereira, Sonia & Slaughter, Matthew, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," CEPR Discussion Papers 3384, C.E.P.R. Discussion Papers.
- Andrew K. Rose & Mark M. Spiegel, 2011. "The Olympic Effect," Economic Journal, Royal Economic Society, vol. 121(553), pages 652-677, 06.
- Andrew K. Rose & Mark M. Spiegel, 2009. "The Olympic Effect," NBER Working Papers 14854, National Bureau of Economic Research, Inc.
- Andrew K. Rose & Mark M. Spiegel, 2009. "The Olympic effect," Working Paper Series 2009-06, Federal Reserve Bank of San Francisco.
- Rose, Andrew K & Spiegel, Mark, 2009. "The Olympic Effect," CEPR Discussion Papers 7248, C.E.P.R. Discussion Papers.
- Nicola Persico & Alessandro Lizzeri, 2001. "The Provision of Public Goods under Alternative Electoral Incentives," American Economic Review, American Economic Association, vol. 91(1), pages 225-239, March.
- Alessro Lizzeri & Nicola Persico, "undated". "The Provision of Public Goods Under Alternative Electoral Incentives," Penn CARESS Working Papers b96440ba0bfa06ca550ac40aa, Penn Economics Department.
- Alessandro Lizzeri & Nicola Persico, "undated". ""The Provision of Public Goods Under Alternative Electoral Incentives''," CARESS Working Papres 98-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public employment and labour market performance," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 7-66, 04.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public Employment and Labor Market Performances," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01017844, HAL.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public Employment and Labor Market Performances," Sciences Po publications info:hdl:2441/8846, Sciences Po.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public employment and labor market performances," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00256207, HAL.
- Alessandro Lizzeri & Nicola Persico, 2005. "A Drawback Of Electoral Competition," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1318-1348, December.
- Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109 Elsevier.
- Patrick Bolton & Marco Becht & Alisa Röell, 2002. "Corporate Governance and Control," NBER Working Papers 9371, National Bureau of Economic Research, Inc.
- Marco Becht & Patrick Bolton & Ailsa Roell, 2003. "Corporate governance and control," ULB Institutional Repository 2013/13330, ULB -- Universite Libre de Bruxelles.
- Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
- JuanD. Carrillo & Micael Castanheira, 2008. "Information and Strategic Political Polarisation," Economic Journal, Royal Economic Society, vol. 118(530), pages 845-874, 07.
- Micael Castanheira De Moura & Juan Carrillo, 2008. "Information and strategic political polarization," ULB Institutional Repository 2013/10003, ULB -- Universite Libre de Bruxelles.
- Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 321-359, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7660. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.