Winning Proposal to the Pierce Scholar's Fund: 2007 Competition

Project Title: Barriers to Rent-seeking Activities: Police-patrol or Fire-alarm Oversight

Faculty Sponsor and PI: Anna Grzymala-Busse

Ph.D. Student: Yoshikuni Ono

Project Description

The purpose of our project is to collect data and develop a theoretical argument about why political actors create institutional barriers that constrain their abuse of public office for private gain - rent-seeking activities. The problem of rent-seeking activities is one of the central concerns for representative democracies, where elected officials have privileged access to state resources. In order to prevent the rent-seeking activities, political actors develop institutions of monitoring and oversight that constrain themselves and limit their own discretion. However, the number, timing, control, and scope of the institutional development vary considerably across countries. Why do some countries have more oversight institutions than others? Why do some countries adopt oversight institutions earlier than others? In order to address factors and incentive mechanisms that prompt elected officials to develop institutional barriers, we propose to analyze the development of oversight institutions that monitor the bureaucratic behavior in parliamentary democracies, because political actors attempt to extract state resources through the authority of an overseeing bureaucracy.

In the oversight literature, McCubbins and Schwartz (1984) introduce two forms of oversight with which elected officials monitor the bureaucratic behavior: (1) police-patrol oversight, in which legislators examine a sample of bureaucratic activities with the aim of detecting and remedying any violations of legislative goals, and (2) fire-alarm oversight, in which legislators establish a system of rules, procedures, and formal institutions that enable individual citizens and organized interest groups to examine administrative decisions. McCubbins and Schwartz argue that legislators prefer fire-alarm to police-patrol solutions and build oversight institutions because the fire-alarm serves their interest to monitor the bureaucracy at lower costs compared to the police-patrol.

A major limitation of this literature is that it focuses exclusively on the informational aspect of the relationship between elected officials and bureaucrats, and ignores the fact that creating oversight institutions constrains elected officials themselves and reduces their discretion to extract state resources through the authority of an overseeing bureaucracy. Since fire-alarm solution creates institutions that monitor elected officials as well as bureaucrats, the elected officials cannot abuse their authority for rent-seeking activities. On the other hand, police-patrol oversight does not discourage their rent-seeking activities, since elected officials can make sure that bureaucratic activities reflect their personal interests directly by using their oversight influence. Hence, elected officials would not necessarily prefer the fire-alarm solution even if the fire-alarm is more efficient to prevent the asymmetric information problems between elected officials and bureaucrats. What we know about the incentive mechanisms that prompt elected officials to develop oversight institutions, however, is very limited. Why do the elected officials create oversight institutions? How and under which conditions do the elected officials create the fire-alarm oversight institutions?

In order to answer these questions, we will construct a game-theoretic model and evaluate its predictions with quantitative statistical analysis. For the empirical analysis, we will collect data on the establishment and politicization of the formal institutions of monitoring and oversight (domain of control, leadership appointment procedure, and independence), the domestic political competition (threats of replacement in office), external imposition (the pressure from regional or international organizations), coalition governance (office payoffs and side payments of coalition bargaining), and the structure of legislature in parliamentary democracies for the postwar period. The data will be analyzed to examine whether the institutional development is triggered by domestic competition, external imposition, or coalition governance.