Dynamic Incentives and the Optimal Delegation of Political Power

37 Pages Posted: 16 May 2007

See all articles by Gauti B. Eggertsson

Gauti B. Eggertsson

Federal Reserve Bank of New York

Eric Le Borgne

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2007

Abstract

This paper proposes a theory to explain why a politician delegates policy tasks to a technocrat in an independent institution. It formalizes the rationales for delegation highlighted by Hamilton (1788) and by Blinder (1998). Delegation trades-off the cost of having a possibly incompetent technocrat with a long-term job contract against the benefit of having a technocrat who (i) invests more effort into the specialized policy task and (ii) is better insulated from the whims of public opinion. One natural application of the theory is in the field of monetary policy where the model provides a new theory of central bank independence.

Keywords: Central banks, Governance

Suggested Citation

Eggertsson, Gauti B. and Le Borgne, Eric, Dynamic Incentives and the Optimal Delegation of Political Power (April 2007). IMF Working Paper No. 07/91, Available at SSRN: https://ssrn.com/abstract=986819

Gauti B. Eggertsson

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Eric Le Borgne (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
73
Abstract Views
437
rank
163,149
PlumX Metrics