Common Agency in Political Economy

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The political process by which economic policy is made and implemented involves several principal-agent relationships. One participant (a political party, legislature, or a bureaucratic agency) takes some action that affects another (voters, special, or interest groups). The latter (the principal) can devise a contract or an incentive scheme to influence the actions of the former (the agent). The incentives take different forms. In the relationship between lobbyists and political parties, these can be cash payments. When groups of voters are the principals and politicians the agents, the incentives take the form of promises of votes. When the Congress is a principal for a bureaucratic regulatory agency, the incentives can consist of funding or threats of micromanagement. Observers of political agency relationships have noted an important special feature of these, namely the existence of multiple principals who simultaneously attempt to affect the actions of the agent. In the U.S., each bureaucracy is constantly under pressure from the Congress, the courts, the media, and lobbyists. In Europe, several sovereign nations attempt to influence the decisions of the European Union's central decision-makers. In such common agencies, the incentive schemes offered by the various principals jointly affect the action of the agent, and therefore the return to each principal. The equilibrium of this interaction among the principals ultimately determines the agent's incentives. The aim of this project is to construct theoretical models to examine the interaction in several such "common agencies," and characterize their outcomes. A general methodology is developed, which can help construct tractable models involving several principals and several dimensions of the agent's choice. The value of the approach is demonstrated using two solved examples, and then several further proposed applications constitute the research agenda.