Delegation and political turnover

Abstract

We study a two-period delegation model with an uncertain future principal. In the first period, an incumbent principal decides whether to delegate policy-making authority to an agent or make policy herself. Before the second period, there is an election, and another principal with different preferences may take power. The main result is that the incumbent can exploit the uncertainty about the future principal to extract policy surplus from the agent. The agent’s uncertainty about the future principal pushes him to implement a policy that both principals accept. The surplus from this compromise policy makes the incumbent better off than she would be without the possibility of turnover. We also find that when costs are low, policy stability can increase as elections become more competitive, as the agent has more incentive to implement a compromise policy. We then allow the incumbent to appoint the agent. We show that as the incumbent becomes more likely to retain office, she prefers more policy conflict with the agent.