Endogenous Institutions in Bureaucratic Compliance Games

UNIMI Department of Economics Working Paper No. 03.2000

36 Pages Posted: 20 Nov 2004

See all articles by Michele Santoni

Michele Santoni

University of Milan - Department of Business Policy and Economics

Silvia Fedeli

Sapienza University of Rome - Department of Public Economics

Date Written: March 2000

Abstract

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 updates its 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.

Keywords: Bureaucracy, Common agency, Repeated compliance games

JEL Classification: D73

Suggested Citation

Santoni, Michele and Fedeli, Silvia, Endogenous Institutions in Bureaucratic Compliance Games (March 2000). UNIMI Department of Economics Working Paper No. 03.2000, Available at SSRN: https://ssrn.com/abstract=620363 or http://dx.doi.org/10.2139/ssrn.620363

Michele Santoni (Contact Author)

University of Milan - Department of Business Policy and Economics ( email )

Milano, I-20122
Italy

Silvia Fedeli

Sapienza University of Rome - Department of Public Economics ( email )

via del Castro Laurenziano, 9
Rome, RM 00161
Italy