Yardstick Competition and Political Agency Problems

U of London Queen Mary Economics Working Paper No. 441

27 Pages Posted: 19 Oct 2001

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Jean Hindriks

University of London - School of Economics and Finance

Date Written: October 2001

Abstract

This paper analyzes the role of yardstick competition for improving political decisions. We examine how performance comparisons across jurisdictions affect the agency problem resulting from uncertainty about politicians (adverse selection) and their policies (moral hazard). We study two forms of inefficiency: the provision of non-valuable programmes (over-provision) and the failure to provide valuable programmes (under-provision). We find a general neutrality result: yardstick competition does not affect the chance that at least one type of politician in one jurisdiction will take inefficient decision, nor does it affect the risk of underproviding good programmes. However, performance comparisons reduce the risk of providing bad programmes in both jurisdictions.

Keywords: Electoral competition, yardstick competition

JEL Classification: D72, H20, H71

Suggested Citation

Belleflamme, Paul and Hindriks, Jean, Yardstick Competition and Political Agency Problems (October 2001). U of London Queen Mary Economics Working Paper No. 441. Available at SSRN: https://ssrn.com/abstract=287885 or http://dx.doi.org/10.2139/ssrn.287885

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Jean Hindriks (Contact Author)

University of London - School of Economics and Finance ( email )

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