Research Handbooks in Law and Economics series
Edited by Daniel A. Farber and Anne Joseph O’Connell
Chapter 10: Designing Agencies
Jacob E. Gersen1 Introduction The journal that today goes by the name ‘Public Choice’ originally had a less appealing but more accurate title: ‘Journal of Non-Market Decision Making’. The impetus for the new journal was apparently to make some headway on the thorny problem of decisionmaking by government actors by using the tools of modern economics. Although critics of the public choice movement are quick to point out that government organizations are different than firms because government entities lack the profit motive, that distinction was precisely the reason for the new journal. The cornerstone of public choice, at least as originally conceived, was a commitment to use tools of economic theory to analyze actors and entities that systematically differ from traditional actors in private markets. Although some in the field today prefer the moniker ‘political economy’ or ‘positive political theory’ (PPT), the central goal remains the same: a rigorous and realistic understanding of decision-making in government institutions. This chapter sketches the public choice theory – or, more sensibly, public choice theories – of the federal bureaucracy. How are administrative agencies designed and what are the implications of these design principles for effective and efficient government? Administrative agencies have long been a staple of representative democracy, analyzed by Weber, Tocqueville, Montesquieu and dozens of other prominent political theorists.2 In most of these studies, the existence of administrative agencies is the starting point for analysis. Yet, from the perspective of institutional design, there is no necessary reason to assume that a supreme legislature will...
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