I'm no expert on this, but don't government officials in China make a lot more money if they hit GDP targets, and it's resulted in a lot of ghost cities and trains to nowhere?
The principle/agent problem tends to reduce the more you decentralize. State governments seem to be better than the federal government. Town governments better than the state government. Most of my biggest recent gripes about government could have been solved by devolving the decision making from the state/county level to my towns level.
Furthermore, local governance makes Exit a lot easier. You can exit a town easier then a state and a state easier than a country.
It's not irrational for voters because their primary concerns with respect to voting are to signal their values, group membership etc to others not to cause the best policy to be implemented. Complex schemes like this often depend on a number of difficult empirical claims making it hard to clearly evaluate where someone stands so we signal by voting largely based on rhetoric not ideal policy.
Ok, it's irrational in the very very narrow sense that a fully rational agent would simply vote differently and lie about it but within the domain of human capabilities it's pretty rational.
I think it is true that PA is a problem, partially because of irrationality. The bigger problem, or at least the downstream problem, is that when PA problems are allowed to to run too wild the companies don't go under. Why? I suspect the answer has something to do with the fact that the agents like it that way, and push pretty hard to make sure the principals are both irrational and protected from that irrationality by outsiders. Too big to fail style thinking benefits the agents and hurts the principals long term, but benefits principals in the moment, protecting irrationality. Seems like just the thing naughty agents would want.
Government institutions, of course, are never allowed to die. (Fail enough and they will increase your budget.) Even better, we put them in charge of teaching the principals how to think about how their agents are performing... are we surprised that agents seem particularly irrational and have a hard time thinking about this stuff?
As someone who works in financial markets, while I think PA problems at public companies are real and could be improved upon, they're easily 1-2 orders of magnitude less than those in politics. There are a number of checks that exist with public companies that don't within politics. Starting with a very basic one that's available to everybody: if you're disgusted with the management of a stock you own, you can sell it tomorrow at zero cost, at the click of a button. And CEOs are generally motivated by declines in their stock price.
You can also leave the USA if you're disgusted with our politicians, but it's very far from zero-cost or as easy as clicking a button. This is a good argument for states taking more power for themselves though, since changing states is much easier than leaving the country, so it would be good to see more scope for competition and differentiation between states for residents.
Also, investors are less patient than voters, and much more results-oriented. You can't just use demagoguery to explain why your company has gone to hell under your watch and expect to keep people on your side because you're the lesser evil and the next CEO might be even worse.
Would we be better off if we elected people by function? So a Defense CEO comes with a defense tax, a charity CEO who would oversee all welfare including SS and Medicare and his tax, a transportation CEO who would oversee road and airport construction etc.?
> Politicians have many opportunities to abuse their power, and monitoring is costly. This is no reason to despair; as Gary Becker (1968) explained, we can use probability multipliers to make good behavior incentive-compatible despite imperfect information.
I know this is the case with criminals, who tend to be impulsive and stupid, but is it as much the case for everyone else? In what contexts outside of crime has the relevance of severity vs. probability of punishment been rigorously studied?
I generally love your analyses, but this one may be needlessly complicated. Irrational? Maybe. But I think voters demonstrate how easy it is to sell "free beer." I admit, its my favorite kind. WE LOVE IT. "Vote for me, your stuff's free." What was it Bastiat said? “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”
I'm no expert on this, but don't government officials in China make a lot more money if they hit GDP targets, and it's resulted in a lot of ghost cities and trains to nowhere?
The principle/agent problem tends to reduce the more you decentralize. State governments seem to be better than the federal government. Town governments better than the state government. Most of my biggest recent gripes about government could have been solved by devolving the decision making from the state/county level to my towns level.
Furthermore, local governance makes Exit a lot easier. You can exit a town easier then a state and a state easier than a country.
It's not irrational for voters because their primary concerns with respect to voting are to signal their values, group membership etc to others not to cause the best policy to be implemented. Complex schemes like this often depend on a number of difficult empirical claims making it hard to clearly evaluate where someone stands so we signal by voting largely based on rhetoric not ideal policy.
Ok, it's irrational in the very very narrow sense that a fully rational agent would simply vote differently and lie about it but within the domain of human capabilities it's pretty rational.
Better to tie performance to pensions than salaries - get them to take a long-term view.
A) I accept your voter irrationality framing.
B) It seems as if most public companies are facing the same levels of PA difficulties. And as per Robin Hanson, they don't want solutions.
C) Given the big issues with even public companies, I am concerned that you may be still underselling the PA problem.
I think it is true that PA is a problem, partially because of irrationality. The bigger problem, or at least the downstream problem, is that when PA problems are allowed to to run too wild the companies don't go under. Why? I suspect the answer has something to do with the fact that the agents like it that way, and push pretty hard to make sure the principals are both irrational and protected from that irrationality by outsiders. Too big to fail style thinking benefits the agents and hurts the principals long term, but benefits principals in the moment, protecting irrationality. Seems like just the thing naughty agents would want.
Government institutions, of course, are never allowed to die. (Fail enough and they will increase your budget.) Even better, we put them in charge of teaching the principals how to think about how their agents are performing... are we surprised that agents seem particularly irrational and have a hard time thinking about this stuff?
As someone who works in financial markets, while I think PA problems at public companies are real and could be improved upon, they're easily 1-2 orders of magnitude less than those in politics. There are a number of checks that exist with public companies that don't within politics. Starting with a very basic one that's available to everybody: if you're disgusted with the management of a stock you own, you can sell it tomorrow at zero cost, at the click of a button. And CEOs are generally motivated by declines in their stock price.
You can also leave the USA if you're disgusted with our politicians, but it's very far from zero-cost or as easy as clicking a button. This is a good argument for states taking more power for themselves though, since changing states is much easier than leaving the country, so it would be good to see more scope for competition and differentiation between states for residents.
Also, investors are less patient than voters, and much more results-oriented. You can't just use demagoguery to explain why your company has gone to hell under your watch and expect to keep people on your side because you're the lesser evil and the next CEO might be even worse.
Would we be better off if we elected people by function? So a Defense CEO comes with a defense tax, a charity CEO who would oversee all welfare including SS and Medicare and his tax, a transportation CEO who would oversee road and airport construction etc.?
> Politicians have many opportunities to abuse their power, and monitoring is costly. This is no reason to despair; as Gary Becker (1968) explained, we can use probability multipliers to make good behavior incentive-compatible despite imperfect information.
That was Gary Becker's biggest mistake.
https://marginalrevolution.com/marginalrevolution/2015/09/what-was-gary-beckers-biggest-mistake.html
Swiftness & certainty >>>>>> harshness of punishment. Because people are hyperbolic discounters.
I know this is the case with criminals, who tend to be impulsive and stupid, but is it as much the case for everyone else? In what contexts outside of crime has the relevance of severity vs. probability of punishment been rigorously studied?
Another solution, regarding decentralisation, is to apply liquid democracy and monitor decisions via blockchain https://vladanlausevic.medium.com/abc-of-liquid-democracy-82c4ea85bc1
“ many democracies already have parliamentary systems where responsibility is quite transparent; why not copy them?”
I have no answer. Is there a good treatment of this question somewhere you know of?
I generally love your analyses, but this one may be needlessly complicated. Irrational? Maybe. But I think voters demonstrate how easy it is to sell "free beer." I admit, its my favorite kind. WE LOVE IT. "Vote for me, your stuff's free." What was it Bastiat said? “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”