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Multiple-task common agency with one fully-informed principal: implications for public policy

Author

Listed:
  • Laurent Franckx

    (K.U.Leuven, C.E.S., Energy, Transport and Environment
    Royal Military Academy)

  • Alessio d'Amato

    (Faculty of Economics, University of Rome Tor Vergata)

Abstract

This paper verifies the robustness of Dixit's claim that common agency problems in the public sector can be solved by restrictions on the incentive schemes that government agencies can develop for the subordinates of other departments. In our model, the outside principal (for instance, an environmental agency) offers side payments to the hierarchical superior of a public servant. As suggested by Dixit, the side payment is based only on the output that is of direct relevance for the outside principal (for instance, environmental quality). The hierarchical superior, however, can impose an enforceable effort allocation. We show that the outside principal will bribe the hierarchical superior to impose a zero effort level in the task that constitutes the core mission of his department, unless there exist both lower and upper limits to the transfers that can be made. Thus, without exogenous restrictions on side payments, common agency will lead to a collapse of the division of labor within government.

Suggested Citation

  • Laurent Franckx & Alessio d'Amato, 2002. "Multiple-task common agency with one fully-informed principal: implications for public policy," Energy, Transport and Environment Working Papers Series ete0206, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0206
    as

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    More about this item

    Keywords

    environmental economics; common agency; division of labor inside government;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • H1 - Public Economics - - Structure and Scope of Government
    • H79 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other
    • H8 - Public Economics - - Miscellaneous Issues
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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