Yardstick competition and political agency problems

Electoral accountability Yardstick competition 0502 economics and business 05 social sciences jel:D72 electoral accountability, Yardstick competition Electoral competition, Yardstick competition jel:H71 jel:H20
DOI: 10.1007/s00355-003-0297-8 Publication Date: 2005-04-12T15:19:46Z
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.
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