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Theoretical and Applied Economics
No. 2 / 2016 (607), Summer

A common agency within bureaucracy

Nadide Banu OLCAY
University of Cologne, Germany

Abstract. We explore the welfare implications of multiple principals in the top level of bureaucracy. An agent has to carry out two separate tasks, which can either be organized by two separate principals, or combined under one principal. The relationship between the top level (the principals) and the lower level (agent) of bureaucracy is a “principal-agent problem”. The presence of multiple principals generates a “common agency”. We show that the optimal bureaucratic structure depends on the existence of rents from office: the two systems produce equally welfare-efficient outcomes if there are no rents, a singleprincipal model dominates common agency otherwise.

Keywords: principal-agent, bureaucracy, incentives, public goods.

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016


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