Sunday, October 02, 2011

Misaligned incentives in government

In their book, The Dictator's Handbook: Why Bad Behavior is Almost Always Good PoliticsBruce Bueno de Mesquita and Alastair Smith make the point that the incentives for political leaders are seldom aligned with the benefits to the public. They suggest that the primary goal of almost all politicians is to satisfice enough of their supporters to stay in office.

As I understand the argument, they see politicians as implementing strategies to stay in (or obtain) office. The most efficient, lowest risk strategy may be to target a small number of people needed to tip the balance in such a way as to assure their needs for office to be met.

In dictatorships, the number of supporters to be satisficed may be very small -- key military and intelligence leaders, key people with command of finance, etc. Dictators will tend, according to this analysis, to try to obtain a great many resources to enrich those key people.

In the case of democracies, the politician need only find enough voters to assure victory. There are some core supporters of the party who vote a party line reliably, and some core opponents who will under no circumstances give the politician their votes. The politician need only obtain enough of the votes of the swing voters to give a majority (plurality) of the people who actually turn out to vote.

In the historical process that led to Prohibition in the United States, the Anti-Saloon League recognized this fact and focused on the single issue of prohibition. The League successfully threatened politicians that opposition to prohibition would mean that the full power of the League, thousands of volunteers and a massive public relations program, would be brought to bear against them. It supported politicians who supported prohibition whatever their other political positions might be. The result was that few politicians would oppose prohibition, teatotalers became prohibitionists.

As Kahnemann and Taleb have suggested, there is a similar problem of the misalignment of the incentives for corporate managers with the interests of their stockholders and the public. A CEO can get very rich very quickly by making it worthwhile for a few key managers and stockholders to support him/her, even as he runs the firm into the ground and damages the public interest.

Clearly democratic institutions are more likely to align the strategies that politicians use to stay in or obtain office with the welfare of the public. However, there are all sorts of democracies, as there are all sorts of dictatorships. For each the problem for the public and the do-gooder is how to modify the institutions to get politicians to do more for the public.

1 comment:

Anonymous said...

Selecting the few to reward. Makes me wonder how this is related to the winner-take-all society. I don't know; I'm just wondergin.