This project improves our conceptual understanding of the political process of making and implementing economic policy, by bringing together ideas and methods from political economy and organization theory. Political economy considers the process of policymaking - voting in elections, committees and legislatures in a democracy, and interaction among ruling groups in an oligarchy. Organization theory in this context studies the agencies or bureaucracies that implement economic policy, paying attention to the internal structure and incentives of the officials. However, the two should interact. Policymaking should recognize that the decisions are not going to be implemented by a perfect Weberian bureaucracy, and organizational theory should recognize that the incentives at the implementation stage will be influenced by the objectives and constraints on the politicians or oligarchs.
The research consists of theoretical modeling of this interaction. The most immediate aim is to examine how this interaction leads to differences in economic outcomes of democracies and authoritarian regimes. Two such sources of difference are pertinent. First, the costs of giving incentive payments to bureaucrats differ for the two types of regimes. In democracies this is merely a transfer from one citizen to another; that may be costly because the transfer bucket may be leaky. But an autocrat or oligarch who seeks to extract private benefit from the economy has to bear the whole cost of the incentive payments. This larger cost leads the autocrat to give weaker incentives and accept worse economic outcomes than the democratic ruler; for example fewer or worse public goods will be provided in autocracies than in democracies. Second, if some types of rulers and some bureaucrats have other-regarding preferences where they care for the citizens' welfare while other types are purely selfish, then there can be a positive matching where benevolent rulers hire altruistic officials and kleptocratic rulers hire selfish bureaucrats. This again favors democracies.
This basic model suggests more issues to explore, for example instead of (or in addition to) direct incentive payments, incentives in public agencies come from career structures in agencies, yardstick competition among bureaucrats, and monitoring of one agency by another. More generally, integration of political economy and organizational theory promises deeper understanding and enrichment of both fields.
