Biased politicians and independent agencies
| DOI | 10.1177/09516298211003129 |
| Published date | 01 July 2021 |
| Author | Amy Pond |
| Date | 01 July 2021 |
| Subject Matter | Articles |
Article
Journal of Theoretical Politics
2021, Vol.33(3) 279–299
ÓThe Author(s) 2021
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DOI: 10.1177/09516298211003129
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Biased politicians and
independent agencies
Amy Pond
Technical University of Munich, Munich, Germany
Abstract
Some agencies derive legitimacy from their political independence: for example, political meddling in
monetary policy is problematic, as politicians favor short-term electoral goals over long-term eco-
nomic stability. Nevertheless, the process of agency reform, even for agencies that are thought to be
independent, is seldom onerous and often follows standardlegislative procedures.Furthermore, citi-
zens frequently lack expertise to hold policymakers accountable for new bureaucratic policies. Why
then do politicians abstain from exercising influence through agency reform? This article delineates an
informational cost to agency reform. In issue areas where politicians are frequently biased and citizens
cannot perfectly observe the quality of agency reforms, citizens assume that reforms serve the politi-
cians’ self-interest and punish politicians for any reform at all. Agency independence then comes more
from informational challenges than from institutional design. This article develops a formal model to
explain when agencies are reformed and when they retain their independence.
Keywordss
Political bias; bureaucraticagency; reform; central bank independence; delegation; oversight;
accountability; principal agent model; public influenceand information
1. Introduction
Politicians are perceived to be biased in many issue areas, as interest groups or pol-
iticians themselves benefit from policies that harm the public. Central banking pro-
vides a prominent example: citizens prefer low rates of inflation and stable
monetary policies that facilitate economic transactions. At least in the short term,
politicians can benefit from monetary expansion, as it increases growth and
Corresponding author:
Amy Pond, Technical Universityof Munich, TUM School of Governance and the Bavarian School of Public
Policy,Richard Wagner Straße 1, Munich, Bavaria80333, Germany.
Email: amy.pond@tum.de
improves electoral prospects (Rogoff, 1985). The time-inconsistent preferences of
politicians, preferring expansionary monetary policies in the short term but stable
policies in the long term, creates a divergence between politician and citizen prefer-
ences. Other areas of potential bias include: regulatory policy, where politicians
may benefit from the economic growth facilitated by lax regulation (Aklin and
Kern, 2020; Carpenter, 2004); judicial policy, as courts can privilege government
supporters or punish political opponents (Firth et al., 2011; Popova, 2010); and
electoral institutions, where incumbent politicians may seek to avoid political com-
petition (Bermeo, 2016).
Citizens are likely to be skeptical of political interference in these issue areas
where the public interest differs from the interests of politicians. To overcome this
bias, policymaking is frequently delegated to independent regulators. Monetary
policy again illustrates the idea: central banks are often designed to be politically
independent, with fixed tenure for the banker or an inflation or growth mandate
(Garriga, 2016; Kern et al., 2020). However, there is little guarantee that the inde-
pendence of agencies will be respected. If the delegation is made, it may also be
taken away (Clark and Arel-Bundock, 2013; Franzese, 1999). US Senator Rand
Paul introduces a bill in every legislative session that would audit the central bank.
1
Although the bill would alter the functioning of an independent agency, it only
requires approval from the House of Representatives, Senate, and President to
become law, like any other piece of legislation.
What prevents politicians from reforming independent agencies and executing their
preferred policies? The literature emphasizes fixed costs that are imposed on reversal
(Jensen, 1997; Lohmann, 1992), including: audience costs (Alexiadou and Hoepfner,
2020); the size of the political coalition needed for reforms (Baron and Ferejohn,
1989; Gamson, 1961; Groseclose and Snyder, 1996); or institutional constraints on
political authority (Bodea and Hicks, 2015; Henisz, 2000; Keefer and Stasavage, 2003;
North and Weingast, 1989; Tsebelis, 1995). These arguments have some limitations.
Fixed costs are convincing, but they are often assumed; we know little about where
the costs come from. Cross-national theories do not explain variation in the indepen-
dence of agencies within countries. In this article, I introduce a new theoretical obsta-
cle to reforming agencies. Rather than assuming a fixed cost to reform, the cost of
reform comes from the information provided by the reform decision.
In the following, I first present a standard principal–agent model, where a repre-
sentative citizen delegates policymaking to a potentially biased politician. The
biased politician’s preferences differ from the citizen’s preferences, whereas the
unbiased politician shares the citizen’s preferences. The citizen receives a noisy sig-
nal about the bias of the policy and may then remove the politician from office.
2
In equilibrium, unbiased politicians select the optimal policy from the citizen’s per-
spective, and biased politicians select a policy between the optimal policy and their
ideal point, balancing re-election interests against bias. The citizen removes the
politician if the policy signal is sufficiently biased. I then extend the model to an
environment where the politician does not have direct control over the policy. In
order to change the policy, he must first reform the agency. Through the reform
process, I assume that he can obtain whatever policy he would like. The citizen has
280 Journal of Theoretical Politics 33(3)
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