Loyalty and Competence in Public Agencies

30 Pages Posted: 26 Nov 2006 Last revised: 13 Oct 2014

See all articles by Alexander F. Wagner

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Date Written: 2009

Abstract

Competent public agencies are associated with better economic outcomes. Beyond competence, political leaders need to secure the loyalty of their agencies. Unfortunately, several theories predict a tradeoff between these two valued features. This paper finds that recruitment into agencies is meritocratic where (1) agency officials have poor outside options, (2) careers in agencies are long-lasting, and (3) agency loyalty is important. Moreover, agency competence is lower when (4) loyalty is important but the time horizon is short, and (5) outside opportunities improve but the time horizon is long. This evidence fits best with a theory of loyalty as non-contractible behavior.

Keywords: Public agencies, political economy, loyalty

JEL Classification: H1, M5, P1

Suggested Citation

Wagner, Alexander F., Loyalty and Competence in Public Agencies (2009). Public Choice, Vol. 146 (No. 1/2), p. 145-162, 2011, Swiss Finance Institute Research Paper No. 08-34, Available at SSRN: https://ssrn.com/abstract=947113

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

Swiss Finance Institute ( email )

Switzerland

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