Chapter 3 developed two models on how bureaucratic institutions can affect economic growth. The first model is derived from resource economics and deals with budget maximization, whereas the second model is a principal_agent model on corruption. In the first model of bureaucratic budget catching, bureaucracies are competing for resources like fishermen. Considering taxpayers’ money a free access resource in the absence of tight fiscal control (passive sponsors), bureaucratic self-interest may induce excessive spending even from the perspective of the bureaucrats themselves. Here, bureaucrats would spend resources on lobbying for their own interests rather than providing public goods, thus rendering the bureaus more inefficient. Such decreases in public goods provision affect production society negatively in the next period, leaving fewer resources for the total group of bureaucrats. One possible empirical implication could be strong bureaucratic lobbying within the EU for more administrative resources due to the institutional stronghold of the Commission compared to the Parliament. The second model highlighted why bureaucratic corruption occurs in the European Union (EU) system. Several examples suggest that bureaucratic corruption exists and that the Commission’s anti-fraud agency, Office de Lutte Anti-Fraude (OLAF), is not a fully independent authority. We thus developed a novel interpretation of the principal_supervisor_agent model to cope with non-independent anti-fraud units. This model shows that corruption is likely to occur when the expected value to the client from bribing the agent is larger than the expected value to the principal of truth-telling by the supervisor. Overall, this analysis points to the risks of flawed incentives and the lack of institutional independence among principal, agent, supervisor and clients. Our main policy recommendations are that an anti-fraud unit like OLAF should be placed outside the Commission, and that whistleblowers should receive adequate protection.
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