Moral Hazard in Campaigns: Do Political Candidates Keep Hiring Their Consultants?
45 Pages Posted: 8 Aug 2009 Last revised: 13 Nov 2009
Date Written: November 11, 2009
Abstract
Political consultants play an integral role in modern political campaigns. When candidates hire consultants to assist with their campaign they create a principal-agent relationship with attendant risks of moral hazard. We argue that the promise of a repeated relationship between a consultant and a candidate is a market-based mechanism that can help to align the consultant’s incentives with those of the candidate. We utilize an original dataset of nearly 20,000 matches between candidates and consultants over a ten-year period to understand how candidates take actions designed to reduce agency loss. We find that while a significant number of relationships last for more than one election cycle, the aggregate rate of rehiring never exceeds 50%, and few relationships endure over the long-term. The frequency of re-matching increases with the centrality of consultant services where the potential for and costs of moral hazard are highest. Our paper is the first that focuses on agency costs in the consultant-candidate relationship, and that utilizes longitudinal data to examine how this relationship evolves.
Keywords: Political consulting, campaigns, principal-agent relationship, moral hazard
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