Political Agency and Implementation Subsidies with Imperfect Monitoring

Abstract

Voters are frequently ill-equipped to monitor politicians’ actions. Politicians are expected to implement projects, whose benefits sometimes partially accrue to interest groups (IGs) and not entirely to voters. IGs thus have an incentive to affect which projects politicians implement by providing implementation subsidies to lower the cost of policymaking that politicians incur. This article shows how these considerations interact in a two-period political agency model with moral hazard and adverse selection. I study how the involvement of IGs in the policymaking process can affect voters’ welfare and show why voters might rationally not perfectly monitor politicians in the presence of IGs that might capture projects’ benefits and affect policymaking. (JEL D72, D73, D83)

Voter Information and Distributive Politics

“…This could be, for instance, in the form of a news item featuring evidence of improper actions by the office-holder. Such a process has been incorporated in other models of political accountability, like in Besley and Smart (2007), Avis, Ferraz and Finan (2018) or Blumenthal (2022). Avis, Ferraz and Finan (2018) provides evidence in support of the empirical relevance of this parameter, thereby lending further credence to this modelling strategy.…”

“…First, it contributes to the political agency literature and in particular to the literature that combines moral hazard and adverse selection (for early contributions, see Coate and Morris (1995) and Fearon (1999); for overviews, see Besley (2006), Ashworth (2012), and Duggan and Martinelli (2017)). Besley and Smart (2007), Ashworth and Bueno de Mesquita (2014), Fox and Stephenson (2015), Wolton (2019), andBlumenthal (2022) are the closest: they provide conditions under which less information can benefit a representative voter while shedding light on many issues related to policymaking such as the role of interest groups, medias' influence, fiscal restraints, the effect of non-binding law or the impact of ideology. A common mechanism stands behind these results: making a representative voter less informed can lead to a switch in equilibrium from one characterised by either full control and no screening or no control and full screening to one with partial screening, partial control, or both.…”

Informational Lobbying and Implementation Standards

“…Grossman and Helpman, 1994;Diermeier and Myerson, 1999), subsidy-based theories (e.g. Hirsch and Shotts, 2018;Blumenthal, 2023), or a combination thereof (e.g. Austen-Smith, 1998;Ellis and Groll, 2020;Cotton, 2012).…”

Dark Money and Voter Learning

“…9 Our focus on campaign finance disclosure also relates to political economy literature on transparency in political institutions. This research has studied how the transparency of policy actions (Fox 2007;Patty and Turner 2021;Prat 2005), policy outcomes (Blumenthal 2022;Fox and Van Weelden 2012), and policy processes (Turner 2022;Zerbini 2022) can lead to negative political outcomes through the strategic adjustments of politicians to increased transparency (e.g., pandering). In contrast, we study how the transparency of donor information in political advertising affects both voter learning in elections and, through induced voting behavior based on that learning, voter welfare.…”