Delegation and organizational design within central government, from the ministries to the authorities, has been little studied by economists, despite the obvious applicability of the principal-agent perspective; the exception being central banks. Recently, the theoretical literature has broadened its perspective.
The project will focus on design issues, incl the determination of the authorities’ “size” (scope), their internal decision-making (collegial or by a single individual; with or without a board, etc) and the formal and informal (incentive) contracts that motivate the authority. The empirical research will mainly be conducted in E Europe.
SP (sub-project) 1 will focus on formal and informal contracts. The hypothesis is that informal contracts often deviate substantially from formal contracts. Eg, (the heads of) competition authorities are informally rewarded for successfully blocking mergers and prosecuting cartels, not for allowing welfare improving mergers or for deterring cartel activity; (heads of) auditing authorities are similarly rewarded for finding faults, not for finding government efficiency. Standard economics modelling techniques will be used.
SP2 will assemble a dataset on how central authorities have been designed in E Europe, with a control group including a few Western European countries. Variables of interest will be, i.a., the formal decision structure within the authority, its relation to the minister including explicit and, if possible, implicit contracts, tenure of the head of the authority etc. Standard econometric techniques will be used to relate these measures to the authorities’ environment and tasks, as well as to measures of the outcome of its activity.
SP3 will analyze the pros and cons of collegial decision making. Courts tend to make decisions collegially while organizations with an executive task often have a single decision-maker. Central authorities, with the power to coerce individuals and firms, have some features in common with courts and some in common with executive organizations; this makes them a good point of departure for the analysis.
The three SPs will be integrated. The theoretical analysis will enhance the understanding of the empirical findings and these, in turn, can inspire developments of the theoretical analyses. The recent transition in E Europe and the ongoing development of its government authorities makes it an interesting testing ground for government design issues.