Political accountability and sequential policymaking

Abstract

We develop a model of political accountability with sequential policymaking. When a bureaucrat's actions are transparent, his overseer faces a political time inconsistency problem—she is tempted to revise her retention rule in the middle of the policymaking process. As a result, the bureaucrat's equilibrium behavior overemphasizes later tasks. If the overseer knows the technology by which policies translate into outcomes, then she can eliminate these distortions using task-specific budget caps. However, if the overseer is uncertain about this technology, such budget caps introduce ex post inefficiency. When uncertainty is sufficiently large and consequential, the overseer prefers an institutional environment with a fungible budget and no transparency. Such an environment allows the overseer to exploit the bureaucrat's expertise, though at the cost of weaker overall incentives.