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|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
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.:
- 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.
- 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, 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?," 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.
- Rose, Andrew K & Spiegel, Mark, 2009.
"The Olympic Effect,"
CEPR Discussion Papers
7248, C.E.P.R. Discussion Papers.
- Micael Castanheira De Moura & Juan Carrillo, 2008.
"Information and strategic political polarization,"
ULB Institutional Repository
2013/10003, ULB -- Universite Libre de Bruxelles.
- Alessro Lizzeri & Nicola Persico, .
"The Provision of Public Goods Under Alternative Electoral Incentives,"
Penn CARESS Working Papers
b96440ba0bfa06ca550ac40aa, Penn Economics Department.
- 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.
- Alessandro Lizzeri & Nicola Persico, . ""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.
- 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.
- Yann Algan & Pierre Cahuc & AndrÃ© Zylberberg, 2002.
"Public employment and labor market performances,"
250928, Institut National de la Recherche Agronomique, France.
- 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.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public Employment and Labor Market Performances," Sciences Po publications info:hdl:2441/8846, Sciences Po.
- Marco Becht & Patrick Bolton & Ailsa Roell, 2003.
"Corporate governance and control,"
ULB Institutional Repository
2013/13330, 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.
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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.