Governing the Quango: An Auditing and Cheating Model of Quasi-Governmental Public Authorities

Abstract

The New Public Management has a paramount implication for the delegation of authority to implement public policy, namely that such delegations be designed according to the substance of the task to be performed by a quasi-governmental agent. In other words, the government must be able to choose the best agent to carry out a particular task, which implies that the set of agents must not be confined to actors and departments within the bureaucracy. This flexibility of form increases the importance of ex ante design in the legislature to avoid misuse of public funds by the quango. It also has the potential to increase ex post enforcement activity by the government. This article examines ex ante design from the perspective of auditing, presenting a simple formal model of the construction of auditing procedures as a response to expectations of the misuse of funds. By creating such requirements as the requisite submission of annual plans, reports, and accounts, governments attempt to create a compliance-inducing scheme much like that present in tax enforcement. The theoretical model generates empirical predictions that are statistically examined using data on public bodies in the Netherlands created between 1946-1993. Empirical results demonstrate strong support for the theory.

Keywords: public management, arms-length governance

JEL Classification: H11