Friday, June 19, 2015

Independent regulators and the Progressive movement

I keep reading on the evolution of economic thought about the idea of independent regulatory agencies. A big support to the idea came at the end of the ninetieth century in the USA from the Progressive movement, which opposed the corruption associated to patronage and machine politics, and pushed for reforms in favour of a professional civil service and a neutral administration. It was not until the 1960s that there was a reaction from the right against administrative agencies and strong bureaucracies, when Niskanen argued that the main objective of bureaucrats was to maximize budgets and the size of the administration, adding one more explanation (beyond the Baumol and Wagner laws) to the growth of public expenditure during the past century. Migué and Bélanger generalized the idea of self-interested bureaucrats to consider broader bureaucratic objectives. The theories of administrative organization were in the meantime enriched by the work of behavioural scientists such as Herbert Simon, who emphasized the idea of bounded rationality, and agents who more than maximizing behaved with a satisficing or adaptive behaviour. Starting in the 1980s agency theory added complexity to the analysis of the relationship between agents in the public sector (not necessarily called "bureaucrats"), politicians, interest groups and voters, emphasizing their different motivations and levels of information. In the last few decades, the intellectual heirs of Herbert Simon have modernized their tool box and now add a few ingredients to the analysis of the modern public sector: officials, managers and workers in the public sector may fail to optimize like those analyzed by Simon, but they may also be guided by intrinsic preferences, such as altruism, a public sector ethos, or missions, which may paint a more positive landscape than the one contemplated by Niskanen. However, expert agencies, although necessary, may also be affected by overconfidence and other biases that are equally or more prevalent among experts than among lay people. Today the big debate is how to combine technocratic expertise with a healthy democracy. The ninetieth century progressives would surely enjoy this debate.

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