Pizza, Politics, Principals & Agents

In business, we talk about Principal-Agent problems all the time. This concept is used in many other cases, including politics.  

Let’s start with a business example. In this hypothetical scenario, you decide to buy a Pizza restaurant, but you know you will hire someone to run the day to day operations.  You, as owner, are the Principal.  The person you hire to manage the restaurant is the Agent.  So, the potential problem is that the Agent at times can be motivated to work for their own interests and not work to deliver profits to the owner.  This could be for many reasons, such as wanting to be popular with staff thus allowing long breaks, stealing from the register or allowing other employees to steal from the register, or even doing a fabulous job but then asking for a large bonus at the end of the year that would eliminate any of the cost savings gained, just to list a few.


Ok, so in politics we the voters are the Principals, and the elected officials are the Agents.  So maybe the first place to start is to ask what are we owners of? Is the state government a simple or complex organization?  Does it provide a single service or multiple services?  Is there a priority to those services? What is success for this organization? Is it providing all services at the lowest cost, providing all services in the shortest amount of time, or providing all services to the most amount of people? If the organization is complex, what type of information would you need as an owner?


The next question we may want to ask is what kind of owners are we? Are we engaged owners (Fidelity Contract)? Do we check in on our officials after the election to see what they are doing?  Do we check their work? As a part of such a big ownership group, do we expect others will be engaged so we don’t have to? Do we skip board meetings (voting) because we think others will handle it? Are we prepared when we go to board meetings (vote)?  Did we receive material to consider and did we look for more material to consider?  What was the nature of that material? Was it a push card, a memory of a 30 second advertisement, or a comprehensive analysis?


Let me add one other critical complication.  If a group (special interest) was responsible for providing the money for an Agent’s (elected official’s) promotion efforts, should we expect that the Principal-Agent problem will get worse?  If the Agent (elected official) feels that this special interest group, separate from the original Principals (voters), is more necessary for them to keep their position, does this mean the Agent (elected official) cares even less about the objectives of the original Principals (voters)?  Do these special interest groups in essence become the new Principals that the Agents (elected officials) are obligated to? 


As we can see Principal-Agent problems are an important factor to consider, and they can complicate the effectiveness of our modern politics.


For the statistical and political wonks, see this study and article by Martin Gilens and Benjamin I. Page.