Insulation or Patronage: Political Institutions and Bureaucratic Efficiency

Abstract

Abstract This article presents a model of political insulation of bureaucracies. Political influence can harm competence because it lowers the incentives of bureaucrats to invest in competence. Politicians then want to adopt institutions that insulate the bureaucracy because this establishes a commitment to reward competence. Political leaders insulate the bureaucracy if public good provision is important compared to rent extraction or when political competition forces the political elite to internalize the welfare loss caused by patronage. Through this channel political reforms can lead to reforms of the bureaucracy. The theoretical findings are illustrated with existing empirical studies and data on central bank independence.