Konrad, Kai A.; Torsvik, Gaute
Dynamic incentives and term limits in bureaucracy regulation.
In: European Journal of Political Economy, Vol. 13, No. 2: pp. 261-279
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The paper analyses the interdependence between incentives in bureaucracy regulation in repeated agency relationships without commitment (the 'ratchet' problem) and a regulating politician's reelection prospects. A frequent change of politicians would solve the ratchet problem, but this solution is not time consistent. The ratchet effect causes a further problem of moral hazard between politicians and voters. Politicians may have an incentive to waste resources in gaining competence. This can further increase the welfare cost of repeated agency in bureaucracy regulation. Term limits can be seen as a commitment device for overcoming these problems.