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Transparency, incentives and incumbent performance

Author

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  • Rommel F. Rabanal

    (School of Economics, University of the Philippines Diliman)

Abstract

An expected utility model is used to analyze the allocation decision of an incumbent politician in dividing public funds between expenditures on public goods and pure rents. Comparative statics analysis reveals that while the result for improvements in transparency is ambiguous in terms of simultaneously improving public goods provision and reducing rent-extraction, fixing the incentives scheme faced by the politician while in office yields unambiguously welfare-increasing outcomes. As in any contract under unobservable effort, it is not practicable to insist that the agent reveal his true effort level through increased transparency. Rather, the optimal contract must specify proper incentives and a minimum contractible level of information that accurately relates observed outcomes to the actual effort level exerted by the agent. The paper concludes with empirical results from a panel data set of 115 cities in the Philippines for the years 1996-2000 supporting the predictions of the theoretical model.

Suggested Citation

  • Rommel F. Rabanal, 2005. "Transparency, incentives and incumbent performance," UP School of Economics Discussion Papers 200509, University of the Philippines School of Economics.
    • Handle: RePEc:phs:dpaper:200509
    as

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    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/127/125
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    References listed on IDEAS

    as
    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
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    3. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
    4. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    5. Orville Jose C. Solon & Raul V. Fabella & Joseph J. Capuno, 2001. "Is Local Development Good Politics? Local Development Expenditures and the Re-election of Governors in the Philippines for 1992, 1995 and 1998," UP School of Economics Discussion Papers 200104, University of the Philippines School of Economics.
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    More about this item

    Keywords

    transparency; incumbent performance; rent-seeking;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H00 - Public Economics - - General - - - General

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