Mar. 7

1
Mar. 7 The Bureaucracys Bossesas related to
Agency Theory A Market Economic Perspective

• An economic perspective enables us to examine
  patterns of interests and incentives related to
  particular organizational problems. This slide
  focuses on the basics of agency theory the next
  applies agency theory (more typically used in the
  study of private companies) to the public
  sectorThe bureaucracys bosses.
• Analogous to a market of buyers and sellers as a
  depiction of broader society, economic logic
  focuses attention on exchange relationships
  between those who perform tasks (sellers or
  agents) for buyers (or principals)
• Principals are those who want something. They can
  buy it (from an outside vendor or contractor) or
  use a bureaucracy to perform the taskin which
  case they are bosses who use people within
  bureaucracy to do it. In either case, it assumed
  that a contract (literal or figurative) defines
  the terms of the deal.
• Agents are those who promise to do
  somethingperform according to the contract. But
  their self-interest may lead them to shirk or
  cheat. Agency theory assumes that principals have
  problems getting agents to comply, because.
• Information is a scarce resourceone party
  suffers from a lack of it and is therefore at a
  disadvantage (note it is usually assumed that
  principals lack needed info.but agents can lack
  it in some situations). Principals have to pay to
  get more or better information (or better monitor
  their agentsi.e., shorten their leash. But
  information tends to be more quantitative than
  qualitative.
• Some related terms Adverse selection moral
  hazard
• Public Sector Applications
• Many public sector applications of agency theory
  involve the extent of political (policy maker)
  control over bureaucracy and its managersin
  these applications, policy makers are princpals
  and agency managers are agents.
• Privatizationprincipals (like policy makers)
  could decide that agents inside bureaucracy are
  too expensive and/or uncontrollabe/decide to with
  private vendors
• Market vs. Hierarchytwo different organization
  forms ways of thinking about public organization
• Accountability and ComplianceIt would seem that
  principals would want as much compliance from
  bureaucrats or outside vendors as possible (short
  leash).Is that necessarily the case?
• Delegation (long leash)When does it make sense
  to delegate a good deal of discretion (or
  leeway) to agents?

2
Mar. 7 The Bureaucracys Bosses

• Note Since agency theory focuses on rational
  self-interest, you need to focus on the following
  in terms of the principals or agents best
  interestsrahter than the public interest
• The central questionWould policy makers profit
  by making policy themselves (and micromanaging
  agency implementation) or by delegating a great
  deal of authority to bureaucratic agents?
• What Circumstances Matter?
• Complexity?? Why?
• Salience?? Why?
• Are there certain political advantages to
  delegating authority to bureaucrats think
  strategically.
• How is bureaucratic delegation (or authority)
  checked by the following institutional
  bodies/forces?
• Presidential (or other executive) power?
• Legislative control?
• Judicial review and administrative law?