Agency Problems and Political Institutions
67 Pages Posted: 11 Oct 2013
Date Written: October 18, 1984
To a very large extent, politics is agency. Indeed, agent-principal relationships pervade public and public-private behavior. This paper reviews the extensive but not yet integrated literature applying agency concepts to political settings. This includes agency in definitions of politics or political science; the state as agent and as consisting of agents; agents in the state, i.e., representatives and officials; agency in the relation between constituencies and government; bureaucrats as agents; agency in implementation and compliance; and agency in one functional area of government that has recently seen a great deal of scholarly attention, regulation. An "agency problems" approach to studying political and other agency institutions is proposed. A typology of core agency problems is presented that (unlike the majority of the economics literature) clearly defines the key dimensions of moral hazard and adverse selection. "Principal side" and "agent side" functional problems of agency are identified and discussed; the functional analysis produces another typology that may be employed to develop both theory and prescription in agency settings. Particular problems are displayed almost like games (e.g., the "Major General's problem"), reflecting their syndrome-like features. Three examples of the explicit application of the agency approach to political institutions are presented: diplomacy, policy and other advocacy, and the case of lawyer-legislators.
Keywords: agency theory, agent-principal relationships, agency problems, adverse selection, moral hazard, regulation, bureaucracy, diplomacy, representation, delegation
JEL Classification: D72, D73, D74, D78, D82, H11, K23, L51
Suggested Citation: Suggested Citation