Download Incentives and Political Economy (Clarendon Lectures in by Jean-Jacques Laffont PDF

By Jean-Jacques Laffont

Laffont examines the motivation difficulties created via delegating financial coverage to self-interested politicians and the blurry line among flexibility of decision-making and restraint to pursue own agendas.

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Indeed, in this case the politician has no information and this is known by the agent. The politician cannot offer any manipulation of reports which the firm cannot do by itself. Let m* (0, ) and be the optimal strategies of the two players in G. G is then equivalent to the revelation mechanism which is truthful by definition of the optimal strategy m*. 42 I, Politicians as Informed Supervisors CASE 2: Nature chooses 0 and a —- (h Let mftg, 0 e M,, fBf(0 G ffi, ^} be the optima! strategies of the two players when G is played non-cooperatively.

Downs (1957), p. 283. 28 I, Politicians as Informed Supervisors Consider first the benchmark case where the politician transmits his information truthfully without: particular incentives, Then, his report r equates to his signal a. 14) with an expected welfare: This event happens with probability 1 — {. The expected social welfare with a benevolent politician is The social gain provided by the benevolent politician acting as a supervisor is then and using a politician is valuable if this gain exceeds the cost of providing the supervision technology to the politician (including his opportunity cost).

When the supervisor observes nothing, the principal offers a contract which leaves no rent to a/7-agent but a positive rent to a 0-agent. What are the dimensions of discretion for the supervisor? When he has observed Q, he cannot pretend that 0 = 0, because the only verifiable information he can obtain is 0 = Q, but he can pretend that he has observed nothing and conceal the verifiable information obtained. This opens up the possibility of collusion between the agent and the supervisor. Tirole (1986) and Laffont and Tirole (1993) then make a number of specific assumptions which enable them to solve the many problems associated with the modeling of collusion and to carry out the whole program of characterizing the optimal organizational response.

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