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Loyalty and Competence in Public AgenciesAlexander F. WagnerUniversity of Zurich - Department of Banking and Finance; Harvard University; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) December 17, 2009 Public Choice, Forthcoming Swiss Finance Institute Research Paper No. 08-34 Abstract: Competent public agencies are associated with better economic outcomes. Beyond competence, political leaders need to secure the loyalty of their agencies. Unfortunately, several theories predict a tradeoff between these two valued features. This paper finds that recruitment into agencies is meritocratic where (1) agency officials have poor outside options, (2) careers in agencies are long-lasting, and (3) agency loyalty is important. Moreover, agency competence is lower when (4) loyalty is important but the time horizon is short, and (5) outside opportunities improve but the time horizon is long. This evidence fits best with a theory of loyalty as non-contractible behavior.
Number of Pages in PDF File: 30 Keywords: Public agencies, political economy, loyalty JEL Classification: H1, M5, P1 Accepted Paper SeriesDate posted: November 26, 2006 ; Last revised: April 19, 2010Suggested CitationContact Information
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