DP16100 The Perils of Friendly Oversight

Author(s): Dino Gerardi, Edoardo Grillo, Ignacio Monzón
Publication Date: May 2021
Keyword(s): information transmission, moral hazard, oversight, Persuasion
JEL(s): D72, D73, D82, D83
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16100

In democratic societies, politicians craft reform proposals which are then subject to the scrutiny of external authorities. Politicians want their proposals approved and can work to improve their quality. Authorities have their own agendas: they may be in favor or against the reforms under their scrutiny. We study how the authority's agenda affects the likelihood that a reform is approved and its quality. We show that an authority in favor of a reform can be detrimental towards its approval. This happens when it is easy to incentivize the politician's work and the status quo alternative is not too attractive.