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Endogenous Institutions in Bureaucratic Compliance Games

  • Michele Santoni


  • Silvia Fedeli


We consider a set-up where two governments have either conflicting or matching preferences on the provision of differentiated (local) goods supplied by a common monopoly bureau. We develop a two-stage game. At stage-1, the two governments decide whether or not to merge into a single institution. At stage-2, all players simultaneously and independently take their decisions in terms of production and rents, with perfect knowledge of the other players' strategies. We solve the subgame perfect Nash equilibrium of this game, and show that, if the bureau immediately updatesits objective function to institutional changes, then the governments always prefer merging. However, if there is an initial bureaucratic inertia in adjusting the bureau's objective function to the institutional change, then ruling politicians may prefer decentralisation to centralisation, depending on the strategic properties of the compliance game and on their own discounting.

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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2000-03.

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Date of creation: 01 Jan 2000
Date of revision:
Handle: RePEc:mil:wpdepa:2000-03
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  1. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June.
  2. Barbara Spencer, 1979. "Outside Information and the Degree of Monopoly Power of a Public Bureau," Working Papers 361, Queen's University, Department of Economics.
  3. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  4. Moene, Karl O., 1986. "Types of bureaucratic interaction," Journal of Public Economics, Elsevier, vol. 29(3), pages 333-345, April.
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  8. Malcomson, James M., 1986. "Some analytics of the laffer curve," Journal of Public Economics, Elsevier, vol. 29(3), pages 263-279, April.
  9. Carlsen, Fredrik & Haugen, Kjetil, 1994. " Markov Perfect Equilibrium in Multi-period Games between Sponsor and Bureau," Public Choice, Springer, vol. 79(3-4), pages 257-80, June.
  10. Daems, A.J., 1990. "Budgeting the non-profit organization : An agency theoretic approach," Research Memorandum 6377191a-f918-4f1e-a71a-3, Tilburg University, School of Economics and Management.
  11. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  12. Breton, Albert & Wintrobe, Ronald, 1975. "The Equilibrium Size of a Budget-maximizing Bureau: A Note on Niskanen's Theory of Bureaucracy," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 195-207, February.
  13. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
  14. Fedeli, Silvia, 1999. " Competing Bureaus and Politicians: A Compliance Approach to the Diversion of Public Funds," Public Choice, Springer, vol. 100(3-4), pages 253-70, September.
  15. Chan, Kenneth S. & Mestelman, Stuart, 1988. "Institutions, efficiency and the strategic behaviour of sponsors and bureaus," Journal of Public Economics, Elsevier, vol. 37(1), pages 91-102, October.
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