Dynamic Incentives and the Optimal Delegation of Political Power

Author/Editor:

Eric Le Borgne ; Gauti B. Eggertsson

Publication Date:

April 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2007/091

Subject:

Banking Central bank autonomy Inflation Output gap Tax incentives

English

Publication Date:

April 1, 2007

ISBN/ISSN:

9781451866551/1018-5941

Stock No:

WPIEA2007091

Pages:

35

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