A Principal-Agent Approach to Foreign Economic Policy: State-Business Relations during U.S. Debt Crisis Management

Abstract

U.S. officials often rely on American corporations to achieve public policy objectives within the international economy. For example, commercial banks played an integral role in U.S. debt crisis management efforts. The reliance on American businesses to achieve policy ends challenges theoretical assumptions about relations between private firms and the American state. It also forces analysts to develop new methodological tools for analyzing policy implementation. When foreign policy outcomes depend on the behavior of private firms, traditional models must be modified to account for the complexity of state-business relations in a globalized political economy. To analyze the contribution of American firms to U.S. economic policy objectives, this paper draws upon institutionalist approaches to social science. Institutional analysis, and in particular economic views of organizations, focus on the role of incentives and information asymmetries in inter-organizational relations. This paper develops an analytic framework based on principal-agent theory and uses it to assess U.S. efforts to manage the global debt crisis.