Principal-Agent Models Go to Europe:

Independent Regulatory Agencies

as Ultimate Step of Delegation

Fabrizio Gilardi
Institut d'Etudes Politiques et Internationales
Universit de Lausanne - BFSH2
1015 Lausanne (Switzerland)
+41 21 692 31 48
fabrizio.gilardi@iepi.unil.ch

Abstract
Although principal-agent models have been extensively used by American political
scientists for now more than twenty years, their application to the European context
is much more recent. This paper discusses this evolution and argues that the
principal-agent framework provides useful but insufficient insights into our
understanding of independent regulatory agencies in Western Europe. This is due
to the preponderant focus of principal-agent theory on the consequences of
delegation, at the expenses of the causes. An explanation for the creation of these
agencies is suggested that explicitly takes into account a whole set of political
transaction costs that political actors are likely to take into account when designing
regulatory institutions. In particular, the importance of political uncertainty in
explaining independence is stressed.

Keywords: principal-agent; independent regulatory agencies; regulatory policy;

transaction costs; institutional design.

Acknowledgements: I wish to thank Dietmar Braun, Olivier Giraud and Silja

Husermann for their comments on a slightly different version of this paper. Any
errors are mine.

Paper presented at the ECPR General Conference, Canterbury (UK), 6-8 September 2001
Panel 11-8: Principal-Agency Institutional Relations
1 Introduction

Independent regulatory agencies are flourishing throughout Europe. Governments seem

more and more willing to delegate several, if not all, of their regulatory competencies to
specialised institutions that, unlike ordinary bureaucracy1, they cannot control. The creation of
such agencies can be observed in all West European countries and in a wide range of sectors,
such as formerly nationalised utilities but also as food safety, consumer protection, and general
competition. Thus, the empirical relevance of this recent form of institutional change could
hardly be overstated.
This trend has been interpreted as being part of a more general "rise of the regulatory state"
(Majone 1994a, 1996a, 1997a; La Spina and Majone 2000), where governments tend to replace
direct control of key sectors of the economy with more indirect, regulatory instruments. In spite
of these general theoretical reflections and of their increasing empirical relevance, however,
systematic study of independent agencies is still at an early stage of development. Most often,
scholars have studied independent agencies either as independent variables explaining
regulatory reform and outcomes (Thatcher 1994, 1998), or simply, almost by the way, in the
context of a wider analysis of regulatory regimes (Ltz and Czada 2000). When scholars have
investigated the origins of independent agencies, they have most often done so by stressing the
functional pressures behind them, arguing that these agencies are, under some conditions, a
more efficient or more appropriate form of government (Gentot 1994; Cassese and Franchini
1996; Baldwin and Cave 1999; Eberlein 2000; Jacobs 2000).
Only more recently have scholars tried to explain in a systematic way why governments
create such agencies. Majone (1996b, 1997b, 2001) argues that governments delegate
competencies so as to increase the credibility of their policies. Giraudi and Righettini (2001)
make the point that the creation of independent agencies is linked to structural trends such as
globalisation, Europeanisation, the "rise of the regulatory state", and changes in the modes of
governance. More precisely, they stress that independent agencies fit well into new modes of
governance characterised by horizontal relationships based on plurality of actors and networks.
Thatcher (2001), on the other hand, identifies two main streams in the literature on independent
agencies, namely rational choice and historical institutionalism. His contribution, however, is
more a research agenda than a review of the literature, which still remains very limited.
One of the main purposes of this paper, therefore, is to enhance our theoretical
understanding of delegation of regulatory competencies to independent agencies. One almost
obvious source of inspiration is the principal-agent literature, because it deals explicitly with

2
delegation. Although principal-agent models have been extensively used by American political
scientists for now more than twenty years, their application to the European context is much
more recent. In particular, the debate has been launched in a special issue of the European Journal
of Political Research (37/3, 2000), where parliamentary systems have been analysed as "chains of
delegation". The major steps of delegation have been considered from a principal-agent
perspective: delegation from citizens to their representatives in parliament, from the parliament
to the government, from the government as a whole to single ministers, and finally from the
government to the bureaucracy. Yet the "ultimate" step of delegation, that from the government
to independent agencies, has not been included in the analysis. The second aim of this paper,
therefore, is to discuss this recent evolution of the theory and to assess to what extent are
principal-agent models able to explain delegation to independent agencies.
The paper is structured in two main parts. First, I briefly present the American origins of
principal-agent theory and discuss the changes that have accompanied its arrival in Europe.
Second, I discuss the nature of delegation to independent agencies and assess the usefulness of
principal-agent models to explain it. Conclusions and suggestions for future research follow.

2 Principal-Agent Theory: An Overview

Agency relationships are extremely pervasive even in everyday life. At the highest level of
generality, principal-agent situations arise "whenever one individual's actions have an effect on
another individual" (Stiglitz 1987: 967), or, in a slightly different formulation, "whenever one
individual depends on the action of another" (Pratt and Zeckhauser 1985: 2). The number of
examples that can be given to illustrate this point is limited only by ones imagination. Doctor-
patient, seller-buyer, employer-employee, lawyer-client, and government-bureaucracy
relationships all fall in this category.
The principal-agent relationship can be defined as a social transaction, or interaction, in
which one actor, the agent, carries out actions that are intended to fulfil the interests of another
actor, the principal. The origin of the transaction is usually the fact that one actor, the principal,
say Paul, wants to accomplish a certain goal but, lacking some of the skills, capacities, or
resources necessary to do so, finds another actor with those features, say Anna, and obtains her
services in return for remuneration (Coleman 1990: 146). Through this transaction, whose terms
are stated in a contract, Anna becomes Paul's agent. The problem is that the agency relationship
has very peculiar characteristics that prevent the principal from achieving his goals unless

1 Here and in the rest of the paper, by "ordinary bureaucracy" I mean the Weberian image of bureaucracy. I use this

3
appropriate measures are taken. These characteristics follow from three main assumptions of
principal-agent models: assumptions about the behaviour of actors, their interests, and the
distribution of information among them.
The behavioural assumptions are usually those of the "contractual man" (Williamson 1985:
43-67), where actors are modelled as boundedly rational and opportunistic. Things begin to go
wrong when interests are taken into account. In fact, the second assumption postulates that most
of the time there is an at least potential conflict of interests between the two actors. Given this
configuration, the principals problem is to establish an incentive structure that leads the agent
to maximise the principals interest rather than his own.
The third important assumption is that information is asymmetrically distributed, typically in
favour of the agent. This causes two main problems to the principal, two different kinds of
opportunistic behaviour known as adverse selection (or ex-ante opportunism, or hidden
information) and moral hazard (or ex-post opportunism, or hidden action). Adverse selection
occurs whenever the principal cannot be sure that he is selecting the agent that has the most
appropriate skills or preferences, moral hazard whenever the agent's actions cannot be perfectly
monitored by the principal.
These problems could be mitigated if the agreement between the principal and the agent
could be fixed in perfect, complete contracts. Such contracts, however, have very demanding
requirements (Milgrom and Roberts 1992: 127-132). As actors are only boundedly rational, actual
contracts will always suffer from incompleteness. That is, in actual contractual relations,
contingencies inevitably arise that have not been planned for and, when they do, the parties
must find ways to adapt (Milgrom and Roberts 1992: 128). This has the effect of worsening the
problem of opportunistic behaviour rather than mitigating it.
The main hypothesis of principal-agent theory is that the principal will try to minimise
agency losses deriving from moral hazard and adverse selection. The measures that he can
undertake, however, are themselves costly. The costs associated to this attempt to limit agency
losses are known as agency costs.
Kiewiet and McCubbins (1991) identify four classes of measures intended to contain agency
losses. First, the principal can design his contract with the agent so as to establish an appropriate
incentive structure involving, in particular, a number of sanctions to be applied in case of
misbehaviour. Second, he can establish screening and selection mechanisms that will lead the
agent to reveal his hidden information and, thus, limit adverse selection problems. Third,
monitoring and reporting requirements can be created in order to control the actions of the

expression to stress the sui generis character of independent regulatory agencies.

4
agent. Fourth, institutional checks aim to limit the agent's ability to pursue potentially damaging
actions unilaterally.
As we will see in the next sections, this basic framework has been applied to several problems
that belong to the core of political science.

2.1 Born in the USA

The question of the autonomy of the US bureaucracy is the mother of all principal-agent
analyses in political science. American scholars have spent a good deal of time and effort in
debating the extent to which the bureaucracy is autonomous from Congress and/or the
President. Coherently with the assumption of the principal-agent model (and with the further
assumption that political actors are policy-oriented), they have looked for and identified several
mechanisms through which politicians can minimise bureaucratic drift, which is the difference
between the policy chosen by the enacting coalition and that implemented by the bureaucracy
(McCubbins, Noll and Weingast 1989). As Weingast (1984: 154) puts it, "specialised institutions
evolve to mitigate agency shirking".
In a famous paper, McCubbins and Schwartz (1984) have introduced two notions that have
subsequently been widely used in the literature. The authors distinguish between two forms of
oversight. Police-patrol oversight is the classic form and involves the direct examination by the
principal of a sample of his agent's activities in order to detect and sanction drift. Fire-alarm
oversight, on the other hand, is a less intrusive and less costly form of control that relies on third
party signals over the agent's actions. The principal establishes a structure that enables affected
third parties such as interest groups and media to report bureaucratic misbehaviour.
Scholars have then directed their attention toward a broader range of control instruments2. In
particular, the role of administrative procedures as ex ante control mechanism has been studied
in depth (McCubbins, Noll and Weingast 1987, 1989). By limiting the agent's range of feasible
actions, it is argued, procedures mitigate both general informational asymmetries and specific
moral hazard problems3.
More specifically, McCubbins, Noll and Weingast (1987) consider that monitoring and
sanctioning are highly imperfect means of control, because they are costly and they cannot deal
directly with the asymmetric information problem. Moreover, it has been shown that, since
elected politicians most often have heterogeneous preferences, new legislation is an ineffective

2For a review of the early literature, see Ogul and Rockman (1990) and Moe (1987).
3It is worth stressing here that the notions of fire alarms and administrative procedures partially overlap in that both
imply that affected third parties are associated to the agency's decision-making process. The difference relies in the
goal of this association for politicians. Fire alarms are intended to mitigate asymmetric information problems in a
more efficient way than police patrol oversight. Administrative procedures, on the other hand, mitigate directly moral
hazard problems by giving access to decision-making only to those groups that were behind the original creation of
the agency and/or a given policy.

5
method to correct bureaucratic drifts because the latter creates a new status quo and thus breaks
apart the original enacting coalition (McCubbins, Noll and Weingast 1989). This holds even with
perfect monitoring of agency non-compliance.
As a result, one should expect politicians to have found a more efficient and less costly way
to prevent their agents from shirking. Administrative procedures, it is argued, are such a
mechanism. Procedures have two main effects. First, they counterbalance informational
asymmetries in that they force the bureaucracy to disclose relevant information, about both
planned and implemented actions. Further, procedures determine the nature of the information
available to the agency, as well as the extent to which decisions must be based on such
information. Second, they cope with a problem discussed by Horn and Shepsle (1989) as
"legislative drift" and that Moe (1990, 1995) has subsequently defined as "the problem of political
uncertainty", namely the fact that political property rights, unlike economic ones, are not
guaranteed. This means that what is created by a coalition today can be subverted or even
completely destroyed by another coalition tomorrow without any sort of compensation. To
avoid this problem today's coalition will try to establish "an institutional structure to create
pressures on agencies that replicate the political pressures applied when the relevant legislation
was enacted" (McCubbins, Noll and Weingast 1987: 255). In addition to solving these two
problems, procedures have the huge advantage of being nearly costless as well as of adapting
automatically to changes in the preferences of the enacting coalition's constituency (what the
authors call "the autopilot function").
To conclude, in the American literature it has been convincingly stressed that delegation
tends to be systematically accompanied by some sort of control mechanisms. Yet these
arguments are very much embedded in the US institutional context: are they strong enough to
survive a crossing of the Atlantic Ocean?

2.2 Principal-Agent Models Go to Europe

Only recently has principal-agent theory been systematically used to analyse non-US
institutions. In a special issue of the European Journal of Political Research (37/3, 2000),
parliamentary democracies have been characterised as "chains of delegation" (and, thus, of
principal-agent relationships), and each link has been explored through the principal-agent
approach.
Strm (2000: 268) makes the point that in its ideal-typical form, parliamentary democracy is
a chain of delegation and accountability, from the voters to the ultimate policy-makers. The
first link is from voters to legislators. In this link, electoral laws are a central mechanism to
contain agency losses (Mitchell 2000). In particular, it is argued that agency problems are more

6
severe in party-centred systems, whereas in candidate-centred systems elected politicians are
likely to be more accountable to their constituencies. However, besides electoral laws, other
features such as party discipline also seem relevant (Longley 1998).
In the second link delegation occurs from members of parliaments to governments. The fact
that the delegation process is mediated and controlled by political parties limits agency losses,
because it bounds the ministers' fate to that of his party or coalition (Saalfeld 2000). In addition,
committee specialisation is a solution that parliaments have developed to cope with the
increasing information asymmetries in favour of governments. This, however, also creates new
agency problems between committee members and non-members (Saalfeld 2000: 357).
Delegation also occurs inside governments, namely between cabinet and ministers (Andeweg
2000). In this context, giving the government a hierarchical structure and stimulating truly
collective decision-making are some of the mechanisms that have been established to limit
agency problems.
The third main link is that between the government and the bureaucracy. The comparative
advantage of principal-agent models here is that they predict systematic variation between
problems in the political environment and the institutions for delegation to bureaucrats (Huber
2000). One of such problems is cabinet instability, which may, but need not, lead to increased
bureaucratic drift (Huber 2000: 406-409; Huber and Lupia 2001). Cabinet instability may also
push agents who would otherwise implement a minister-preferred policy not to do so, which
constitutes a "bureaucrat's dilemma" (Huber and Lupia 2001). In other words, bureaucratic drift
can occur even when there is no conflict of interests between the principal and the agent. This
result sharply contrasts with most of the standard principal-agent literature where, as we have
shown, the main source of agency losses is precisely the fact that interests most often conflict.
Institutional features other than cabinet instability seem highly relevant to explain the extent
of delegation to the bureaucracy. These include bargaining costs, legislative capacity, and
available control mechanisms (Huber, Shipan and Pfahler 2001; Huber and Shipan 2001). Given
the presence of policy conflict, the probability that the government delegates extensively
decreases with the government's level of legislative capacity, and increases when it can rely on
existing means of control.
The European Union is seen as "the next step of delegation" (Bergman 2000). Agency
relationships here are two-way. On the one hand, member states, as principals, delegate
competencies to the EU, which becomes their agent. On the other hand, the EU, as principal, has
to rely on member states for the implementation of its policies. In this second case, member
states act thus like agents. This peculiar situation gives rise to important agency problems,
which, however, are still under-researched (Bergman 2000: 423).

7
 It can be seen that, in its European applications, principal-agent theory has increased in
scope. First, the whole chain of delegation is analysed, whereas the US literature is very much,
albeit not only (see for example Kiewiet and McCubbins 1991), focused on delegation to the
bureaucracy. Second, European principal-agent models are explicitly comparative, aiming to
explain cross-national variations in the delegation chain (Strm 2000: 275). Most of the US
literature, on the other hand, is very narrowly concentrated on US institutional characteristics.
Nevertheless, in spite of these differences it seems clear that the fundamental claim of
principal-agent theory holds also for European countries: delegation tend to be accompanied by
control mechanisms that limit agency losses for principals. To this extent, it seems that the
principal-agent framework has a potential for comparative and empirical analyses of European
political systems.
What can also be noted, however, is that current models have been constructed to explain
"classic" forms of delegation. Yet a new form of delegation has recently been observed in
Western Europe, namely from governments to independent regulatory agencies, which, unlike
ordinary bureaucracy, are situated outside the democratic chain of accountability. To what
extent are principal-agent models able to explain this ultimate step of delegation? I turn to this
question in the next section.

3 Delegation to Independent Regulatory Agencies: The Ultimate Step of Delegation

The nature of delegation to independent regulatory agencies is different from that of the
other, more conventional steps in several respects. Two related points seem particularly relevant
here. First, while the problem for the principal is typically to control the agent, in this case we
can observe that governments (principals) design agencies (agents) with the explicit purpose to
make them independent, and thus not controllable. Second, this type of delegation cannot be
explained with standard arguments. These puzzles are discussed in the next two sub-sections.
First of all, however, I briefly introduce the major characteristics of independent regulatory
agencies in Western Europe.

3.1 Delegation of Regulatory Competencies to Independent Agencies in Western Europe

Independent regulatory agencies are rapidly becoming a common institutional form in all
West European countries. Whether what we observe constitutes a real trend is subject to debate,
but it is a fact that a good number of such institutions have been set up in the last few years
(Jacobs 2000). Independent agencies have been established mainly in formerly nationalised

8
sectors such as telecommunications and electricity, but also to regulate food safety and more
generally consumer protection, as well as other industries such as financial services. Examples
include the British Financial Services Authority (FSA), the French "Commission de rgulation de
l'lectricit" (CRE), the German "Regulierungsbehrde fr Telekommunikation und Post"
(RegTP), and the Italian "Autorit garante della concorrenza e del mercato" (Agcm) (for a first
international mapping, see Giraudi and Righettini 2001).
These institutions are different from ordinary bureaucracy. The main difference is that, unlike
the latter, they are situated "at arm's length" from elected politicians. This means that these
agencies are purposely designed so as to be independent, to a certain extent, from political
influence. Concretely, this is done through legislation that determines various aspects of the
agency's status. These include the agency's head and management board members' status (term
of office, appointment and dismissal procedure, etc.), relationship with government and
parliament (accountability, formal obligations, etc.), and financial and organisational autonomy
(budget, internal organisation, staff, etc.)4. More specifically, agencies that enjoy high
independence are typically characterised by a long term of office for their heads and
management board members, as well as an appointment procedure where technical skills are
key factors for the selection, and where the dismissal procedure is designed so as to make
dismissal based on political grounds nearly impossible. Further, highly independent agencies
have very small responsibilities vis--vis government and parliament, often limited to the
presentation of an annual report. Finally, such agencies are free with respect to the allocation of
their budget, which is often funded on fees levied on the regulated industries, as well as to their
personnel policy and internal organisation, which means that they can quite freely hire and
allocate staff according to their needs.
This independence, which can be more or less extensive, is at odds with the basic normative
principles underlying the functioning of ordinary bureaucracy, which draws its legitimacy from
its democratic accountability that, through elected politicians, goes straight to the citizens. To
put it differently, bureaucracy is fully within the standard "chain of delegation" (Strm 2000).
Independent agencies, on the other hand, are a step aside.
A second major difference is that they are specialised institutions, with a specific task and
specific competencies. Unlike ordinary bureaucracy, which is typically organised in large-scale
ministerial departments, independent agencies have narrow goals that are made explicit in the
statutes establishing the agency. The creation of specialised agencies can surely be explained by
the need of expertise. In a complex world, functional specialisation and division of work is the
appropriate answer. It should not be forgotten, however, that specialised agencies are not

4 For more details on the operationalisation of agency independence, see Gilardi (2001).

9
necessarily independent, and that what is puzzling indeed is precisely independence, and not so
much specialisation.

3.2 What Principal-Agent Can Explain (Maybe): Control Mechanisms

Agencies' independence is puzzling. What happens when delegation occurs is typically that
the principal designs control mechanisms, or, more generally, incentive structures, to ensure
that the agent will not shirk. This is one of the fundamental assumptions of principal-agent
theory (Coleman 1990; Weingast 1984; Moe 1984: 756; Strm 2000: 271). Yet, apparently, for
independent agencies the contrary happens. Not only do governments delegate competencies to
specialised institutions, but they also make them independent. This makes the ultimate step of
delegation radically different from the other links in the democratic chain.
From a principal-agent perspective, giving independence equals to suicide. However, it has
been demonstrated in the literature that one should be extremely careful when pretending that
an agent is out of control. In the following paragraphs, therefore, I look for control mechanisms.
Oversight. Oversight of agencies by political principals is the control mechanism par excellence
(Ogul and Rockman 1990). Intuitively, if politicians fear that the agency may shirk, they can just
go and see what actions it takes, and correct them if they do not correspond to their preferences.
However, this direct form of oversight, known as "police patrol" oversight, is likely to be time-
consuming and, because of informational asymmetries, not very effective. Rather, politicians
tend to rely more on "fire alarm" oversight, where affected third parties such as interest groups
and the media monitor agency behaviour and push for political action when needed. Political
principals benefit from this feedback in that it mitigates informational asymmetries and enables
them to undertake focused oversight activities (McCubbins and Schwartz 1984; Lupia and
McCubbins 1994; Hopenhayn and Lohmann 1996; the role of third parties in principal-agent
relationships has been further developed in Lupia and McCubbins 1998 and 2000). For
independent regulatory agencies, police-patrol oversight seems to be tiny, as the formal
obligations of agencies vis--vis governments and parliaments are often limited to the
presentation of an annual report. Fire-alarm mechanisms, on the other hand, seem more
developed. In fact, agencies often have a duty not only of transparency, but also of openness
towards affected third parties.
For example, the British Financial Services Authority (FSA) has a general duty to consult both
practitioners and consumers5, which gives them an opportunity to be fully informed and, if
necessary, to report back to politicians. Similar provisions can be identified also for other
agencies. Interestingly, however, it can be noted that third party access to agency decision-

5 Financial Services and Markets Act 2000, Art. 8 to 11.

10
making varies considerably. Hence, consumers are associated to the British Office for gas and
electricity markets (Ofgem) decision-making, but only indirectly, through a Consumer Council
where the chairman and other members are appointed by the Secretary of State. In Italy, a users
council is associated to communications regulator, which can determine its composition and
functioning6.
This variation is difficult to explain in a fire-alarm perspective, because politicians have
incentives to multiply the points of access to agency decision-making for third parties, so as to
increase the amount of information they can gather and thus the quality of their control. More
insights are gained if the role of administrative procedures is taken into account. What can be
concluded here is that fire-alarm mechanisms seem to be present, even though the extent to
which politicians rely on them varies.
Administrative procedures. Administrative procedures are a major control mechanism
(McCubbins, Noll and Weingast 1987, 1989; Epstein and O'Halloran 1994; Bawn 1995, 1997; Balla
1998; Huber 2000). They have an impact on agency choices in that they determine the sequence
of decision-making and, in particular, which groups have a privileged access to the decision-
making process. More precisely, procedures affect policy outcomes "by affecting the relative
influence of people who are affected by the policy" (McCubbins, Noll and Weingast 1987: 254).
Thus, they create an indirect control over agency's decisions by "stacking the deck" in favour of,
notably, some well-organised constituencies.
As we have seen, the British FSA has a general duty to consult both practitioners and
consumers. To ensure this consultation it must establish two "panels", one for practitioners and
the other for consumers, and has the duty to consider their representations. In case of
disagreement, the agency can go ahead with its decision, but has to give a written statement in
which the disagreement is justified.
It is difficult to conclude from this example that the deck has been stacked. In fact, although
the procedures do restrict consultation to some groups (excluding, for example, employees), at
least consumers and industries have equal access. Yet "deck stacking" procedures may be more
patent. It is notably the case for the Swiss Competition Commission, to which economic
associations, unlike consumers, have direct access. Only a majority of the members must be
independent experts 7, and, in fact, several members are the official representatives of the major
economic associations, including trade unions8. Consumer groups, on the other hand, are not
represented. It has been shown that, unsurprisingly, this has biased the decisions the agency has
taken (Neven and Raess 1999).

6 Legge n. 249/97, Art. 28.

7 Loi sur les cartels (LCart) du 6 octobre 1995, Art. 18.
8 See http://www.wettbewerbskommission.ch/site/e.html

11
 Thus, it can be seen that the extent to which affected third parties, such as consumers and
producers, are involved in the decision-making process varies. In some cases, both consumers
and producers must be associated; in others, only consumers; still in others, there are no specific
provisions and it is up to the agency to decide. This suggests that decisions on such procedures
are taken strategically rather than on the basis of some sort of objective considerations. It seems,
thus, that administrative procedures may be a relevant mechanism that political principals use
to control independent agencies, even though only indirectly.
Appointments. Another control mechanism that is widely stressed in the literature is the
power of political principals to appoint the agencies' head and management board members
(Weingast and Moran 1983; Weingast 1984; Calvert, McCubbins and Weingast 1989; Spulber and
Besanko 1992; Huber 2000; Huber and Shipan 2001). Obviously, to a certain extent this holds
also for independent regulatory agencies: someone has to appoint the top officers, and that
someone is likely to be an elected politician. Yet what can be seen is that appointment
procedures and requirements can be different from those of ordinary civil servants. For
example, the head and management board of the Italian energy regulator (the "Autorit per
l'energia elettrica e il gas") are not appointed by a single minister, but by a complex mix of
executive and legislature. Agency members are appointed by the President of the Republic on
the basis of a designation of the government; this designation, which is itself based on a
proposal by the competent minister, must be approved by the competent parliamentary
commissions9. It is well-known that incentives are much less effective when there are multiple
principals with conflicting preferences (Dixit 1996). Thus, appointments will be a much less
effective means of control if they are not made by a single principal.
Moreover, having a reputation of independence can be a formal requirement for the
appointment, as in the case of Italian regulators. This prevents a politicisation of the agencies,
and contrasts with practices for ordinary bureaucracy that are common in countries such as
France and Germany (Huber 2000: 399).
In addition, agency members usually cannot be dismissed for reasons other than incapacity
or misbehaviour. This means that political principals cannot remove agency members if they
disapprove their policy choices. Further, appointments may be not renewable, and agency
members and may not be allowed to hold other offices in government.
All these elements lead to the conclusion that political principals might well be able to limit
adverse selection problems through appointments (even though only to a certain extent, given
the sometimes extremely restrictive procedural requirements), but they certainly cannot
effectively cope with moral hazard.

9 Art. 2.7, Legge n. 481/95.

12
 These very restrictive conditions do not hold for all regulatory agencies, of course. Some
agencies may have more relaxed appointments procedures, which are a more effective means of
control for governments. What this means is that the extent of independence varies significantly
between agencies.
Budget. It is often argued that control over budgets is an effective means to limit agencies'
discretion (Moe 1987; Huber 2000; Huber and Shipan 2001). Budgets can be used as rewards and
sanctions and thus structure the agencies' incentives. Further, they determine, to a certain extent,
the agencies' activities. Yet virtually all independent regulatory agencies are not financed by the
state's budget, but by fees levied on the regulated industry. Moreover, the budget is often
controlled and approved internally, without any say from either government or legislature. This
control mechanism, thus, is clearly irrelevant for these institutions.
Organisation. Elected politicians can also try to control bureaucracy through threatened or
actual reorganisations of departments (Huber and Shipan 2001). For example, a non-complying
agency or department can be controlled by cutting its staff, or by changing its composition with
low-skilled personnel. This is not possible in the case of independent regulatory agencies,
because they usually enjoy organisational autonomy. To a certain extent, they can freely hire
and staff and decide upon its allocation. For example, the Italian electricity regulator staff cannot
exceed 120 people (Autorit 2000: 307), but can be hired and allocated freely by the agency10.
Moreover, independent agencies often enjoy total organisational autonomy. They can decide
upon their internal structure and procedures and must respect only some minimum standards
imposed by the government.
Again we can see that a typical mechanism of control for ordinary bureaucracy does not
work for independent regulatory agencies.
Legislation. Enacting new laws, or even simply threatening to do so, could seem an obvious
and simple means to control the bureaucracy. If politicians are not happy with the way
bureaucrats are implementing a program, they can just change it. If politicians are not happy
with the regulatory decisions of an independent agency, they can just pass a new law and
change the agency's objectives, make it less independent, or even dissolve it. The agency would
then anticipate this sanction and comply with its principal's preferences. Yet it has been shown
that threat of new legislation is unlikely to work as a control mechanism. Moe (1987) has pointed
out that legislation is ineffective in two respects. First, the threat may suffer from a lack of
credibility. Second, even if new legislation is passed, there is no guarantee that the agency will
actually implement it. In the same vein, McCubbins, Noll and Weingast (1989) have formally
demonstrated that politicians cannot rely on new legislation to correct or punish agency

10 Legge no 481/95, Art. 28-30.

13
shirking. A non-complying agency establishes a new status quo, different from that existing
when the original law was passed, and this, as a result, breaks apart the original coalition, i.e.
the coalition that established the initial mandate. This means that there may be no majority to
pass a law intended to correct agency misbehaviour. Threats of new legislation, thus, are useless
and ineffective.
In this perspective, legislation is supposed to work ex post. On the other hand, however,
legislation can be used as means of control also ex ante . Huber and Shipan (2001: 35) point out
that "legislation is potentially the most definitive set of instructions that can be given to
bureaucrats with respect to the actions they must take during policy implementation". In other
words, legislation is an ex ante means to limit agencies' discretion, on condition that the policy to
be implemented is sufficiently specified. The more legislation is detailed, the more political
principals can exercise ex ante control on the agency. Hence, detailed legislation is a further
means of control, which Huber and Shipan (2001) call "statutory control". We should therefore
expect to observe such statutory control in the case of independent regulatory agencies.
Huber and Shipan (2001) measure statutory control with the length (number of words) of
legislative statutes. For this measure to be accurate, a standardisation must be made to correct
several biases. As a rule of thumb, however, and just to get a first impression, it is instructive to
look even superficially at the legislative statutes creating two electricity regulators, namely the
British Ofgem and the Italian Autorit. It can be noted that the Legge n. 481/95, which
establishes the framework for utilities regulation and creates the "Autorit per l'energia elettrica
e il gas", is less than ten pages long, whereas the Utilities Act 2000, amending the Electricity Act
1989 and the Gas Act 1986, and establishing the Office of Gas and Electricity Markets, is a book
with more than 200 pages. What this shows is that legislation establishing independent agencies
can and does vary in its length and thus in the extent to which regulation is specified. Following
Huber and Shipan (2001), one can argue that more control over regulatory agencies is exercised
when policies are specified in detail in legislation. In conclusion, thus, it can be seen that
detailed legislation can (as it seems to be the case for the British electricity regulator), but does
not need to (as it seems to be the case for the Italian electricity regulator), be used by political
principals as means of control.
Institutional checks. A last solution to the control problem are institutional checks (Kiewiet and
McCubbins 1991: 33-34). Political principals can delegate the same competence to more than one
agent so as to force them to compete in a way that is beneficial to the principals (Ferejohn 1999:
132; Huber and Shipan 2000: 28).
We can at least sometimes observe such institutional checks in the case of independent
agencies. These agencies are only seldom the only competent regulatory authority. If we take the

14
example of the British electricity regulator, the Ofgem, it can be noticed that, although it is
competent for all major regulatory functions in the electricity market, some of these
competencies are shared with the government and/or the parliament (Gilardi 2001). More
specifically, the Secretary of State holds competencies with respect to modification of licences
and regulation of quality and network access, whereas the parliament must approve financial
penalties before they can be enforced. When we turn to the Italian electricity regulator, it can
equally be noticed that the Autorit shares with the government its competence for modification
of licenses, and with another independent body, the "Gestore della rete di trasmissione
nazionale", the competence to regulate network access.
In addition to these two specific examples, it must be noted that the competencies of sector-
specific regulators and general competition authorities may overlap. This happens in several
countries (OECD 1999). In the UK in particular, competition law is enforced by both sector-
specific regulators and the competition authority, so that there is a true competition between
these two types of bodies. In other countries this overlap is not widespread but still exists. In
both France and Germany telecommunications regulators hold some competencies over
competition policy, and the same happens in Italy for the banking sector, whereas in the other
sectors the competencies are clearly separated. It is interesting to note here that there is
considerable cross-national and cross-sectoral variation. Thus, it can be seen that institutional
checks may, but need not be used as control mechanisms when delegation of powers to
independent agencies occurs.
It is time now to assess the usefulness of the principal-agent framework in explaining the
control mechanisms that political principals establish to control regulatory agencies which, in
opposition to ordinary bureaucracy, are purposely designed to be at arm's length from the
government. It goes without saying that, since the observations are limited to only few cases,
these are just first impressions and not a proper test of the theory. On the other hand, this does
not mean that they are irrelevant. The essence of the discussion is summarised in Table 1.

Table 1. Control Mechanisms and Independent Regulatory Agencies

Control mechanisms Relevance for independent agencies Comments

Oversight (police patrols) no
Oversight (fire alarms) yes with variations
Administrative procedures yes with variations (which suggests
strategic choices)
Appointments no with variations
Budget no
Organisation no
Legislation yes with variations
Institutional checks yes with variations

15
 First, it can be noted that one of the main and best-known conclusions of the principal-agent
literature, namely that political principals tend to rely more on fire-alarm than on police-patrol
oversight, seems supported by the fragmentary evidence presented here. However, it should be
noted that there is considerable variation in the extent to which politicians set up fire alarm
mechanisms, and that this variation is both cross-national and cross-sectoral. Moreover, it
should be stressed that, even when fire alarms exist and work, they are unlikely to be an
effective means of control. As we have seen, governments typically lack other mechanisms, such
as control over appointments, budgets and organisation, which enable them to have an effective
and direct impact on agency behaviour. In addition, only seldom, and if special conditions are
met, can governments overturn agencies' policy decisions (Gilardi 2001). Hence, through fire
alarms governments can, at best, be informed that their constituencies dislike agencies' policies,
but most often they will be unable to take action.
The second major insight of the literature, i.e. the role of administrative procedures in
providing an indirect control for political principals, also gains support. Here too we can
observe wide variation between both countries and sectors, but this suggests the presence of
strategic choice and is consistent with the theory (Robinson 1989: 489).
The next three elements, on the other hand, seem irrelevant for independent regulatory
agencies. Most of the time governments have nothing to say with respect to budgets and
agencies' internal organisation, which, as a result and in opposition to ordinary bureaucracy,
cannot be used as control mechanism. The same holds for appointments, but to a lesser extent.
In fact, appointment procedures vary and can be more or less restrictive. However, even in the
latter case governments usually keep only the power to appoint agency members, but not to
remove them in case of conflicts over policy. This means that, at best, appointments can mitigate
adverse selection but not moral hazard problems.
Finally, we have two control mechanisms, legislation and institutional checks, that get only
moderate support from the arguments presented here. In fact, institutional checks seem strong
only for competition policy, and even here there is considerable cross-national and cross-sectoral
variation, which holds also for legislation.
In conclusion, what can be said is that the principal-agent framework, which was originally
developed with reference to the American system, is useful even if applied to a completely
different context. The theory predicts that political principals tend to establish specific
mechanisms to control their agents, and we can observe that some (but not all) of these
mechanisms tend to be present for European independent regulatory agencies. More
specifically, the theory draws our attention to a whole set of non-trivial features of the
institutional framework of these agencies, such as the role of administrative procedures. The

16
evidence presented here is excessively fragmentary, but shows that it would be worth
examining more in detail the relevance of such procedures in the decision-making process.
On the other hand, it cannot be neglected that the other control mechanisms either are not
present at all, or seem less relevant. This confirms that independent agencies are different
indeed from ordinary bureaucracy. Ordinary bureaucracy may well enjoy some independence,
but when this happens, political principals, according to the theory, incur in agency losses. That
is why they develop sophisticated control mechanism. Given the costs of control, political
principals may accept some degree of freedom for their bureaucratic agents, but in a perfect
world they would like to be able to design a principal-agent relationship in which agents "can be
left alone to determine the policy that the elected officials would themselves have chosen, given
the time and resources" (Calvert, McCubbins and Weingast 1989: 590-591). This is what Bendor,
Glazer and Hammond (2001) call the "ally principle".
In the case of independent agencies, on the other hand, the situation is radically different.
Political principal put purposely their agents out of control: they do not accept their
independence as a second-best solution, they want them to be independent. Further, the
delegate may be chosen "precisely because his or her preferences do not mirror those of the
delegating authority" (Majone 2001: 69).
The question here is simple: why do governments delegate important competencies to agents
they cannot control? The answer is not as simple. In the next section I will argue that standard
principal-agent theory can explain delegation to ordinary bureaucracy, but not to independent
regulatory agencies.

3.3 What Principal-Agent Cannot Explain: Delegation and Independence

In standard principal-agent models, little attention is accorded to the question of why
principals delegate competencies (Huber and Shipan 2000; Elgie 2001a). There is a good reason,
of course. A simple and general justification constitutes in most cases a convincing explanation:
principals delegate to agents in order to benefit from the advantages of division of labour and
specialisation (Coleman 1990). As Kiewiet and McCubbins (1991: 24) put it, "tremendous gains
accrue if tasks are delegated to those with the talent, training, and inclination to do them". This
argument is straightforward enough: if I have a problem with my car, it is definitely a good idea
taking it to a garage rather than trying to repair it myself. Analogously, most citizens would not
be keen of deciding directly the precise content of each law.
Moreover, in collective action settings several well-known difficulties arise, such as prisoner's
dilemma, lack of coordination, and social choice instability (Kiewiet and McCubbins 1991: 22-
23).

17
 This simple argument is uncontroversial, and most contributions simply allude to it before
turning to the implications of delegation. For example, Strm (2000: 266) recalls that "delegation
takes place because the agent has certain kinds of information or skills (), or simply time, that
the principal lacks". Lupia and McCubbins (1994: 96-97) affirm that "the potential advantage of
(delegation of policy-making authority to the bureaucracy) is that bureaucrats may have
expertise that legislators desire", and then clarify that "this article is about the consequences of
delegation". And so on.
Fair enough. The problem is that this basic argument alone may well hold for ordinary
bureaucracy, but it does not for delegation to independent agencies. The creation of a specialised
institution to which competencies are delegated can surely be explained by the need of
expertise, and/or by the problems associated to the decision-making process. What cannot be
explained by this argument is the fact that these institutions are made independent.
The point I am trying to make here is that the nature of delegation to independent agencies is
peculiar and cannot be explained by conventional arguments. I could not agree more with
Pereira and Mueller (2001) when they say that, given that politicians are bound to encounter
agency problems,

"it may seem surprising that they would be willing to delegate so often to
independent regulatory agencies, since in principle the same tasks could be
accomplished by other bureaucratic forms, such as ministries and secretariats,
that are easier to control. Clearly there must be some advantages to politicians
from using autonomous agencies instead. What is it that a regulatory agency
can deliver that an executive agency cannot?" (Pereira and Mueller 2001: 1)

The same point is made by Moe, who stresses that insulating an agency from politics is a
structural design that politicians "would never favor on technical grounds alone" (Moe 1995:
137). Hence, there must be some other reasons.
In fact, the state of the art currently does not provide a full explanation of delegation to
independent agencies. The major flaw of the literature is maybe the gap between the numerous
interesting hypotheses that have been suggested and the lack of systematic empirical tests. The
second problem is that explanations often do not tackle convincingly the real puzzle, namely the
fact that politicians purposely make agencies independent. The most prominent example is the
still widespread argument stressing the need for expertise in complex domains. It is worth
insisting here on the basic fact that complexity and expertise alone can explain the creation of a
specialised agency, but cannot logically explain the granting of significant independence.

18
Moreover, the expertise/complexity argument alone does not predict cross-national variation in
delegation: yet this is what we observe.
One sophisticated explanation of delegation to independent agencies is borrowed from the
economic literature on monetary policy (see for example Persson and Tabellini 2000, Ch. 15) and
stresses the role of credibility (Majone 1997b, 2001; Levy and Spiller 1996; Pereira and Mueller
2001). The hypothesis can be resumed in a single sentence: "political sovereigns are willing to
delegate important powers to independent experts in order to increase the credibility of their
policy commitments" (Majone 1997b: 139-140). The argument is that elected politicians, in reason
of the democratic process, have a short time-horizon and often have incentives to change their
decisions after they have taken them, which leads to time-inconsistent policies that are not
credible. When policies cannot rely on coercion in order to be effective, as is often the case for
regulatory policies, this lack of credibility prevents politicians from achieving their goals. Thus,
they try to increase the credibility of their policy commitments, and one way to do this is
precisely delegating authority to independent agencies, which are outside the electoral process
and thus have a longer time-horizon as well as different preferences.
This argument is appealing, and is the standard explanation of delegation of monetary policy
to independent central banks (but see Forder 1998, 2001a). However, as Bernhard (1998) points
out, the credibility hypothesis cannot explain variation in cross-national central bank
independence, which is puzzling indeed if one considers that it has been shown that
independent central banks are usually associated to lower inflation rates (Cukierman, Webb and
Neyapti 1992; Cukierman and Webb 1995; but see Keefer and Stasavage 2000 for a more
nuanced conclusion). Given these benefits, why do not all countries grant independence to their
central banks (Moser 1999)?
Back to independent agencies, the credibility problem seems clearly relevant, but
commitment concerns alone do not appear able to explain the considerable variation in
delegation that can be observed across Europe (Gilardi 2001). One should not forget that
independence is a continuous variable, not a dichotomous one, and, thus, one should look closer
than simply the name of an agency before affirming its independence. Yet even a superficial
look at the various European regulators indicates that the credibility hypothesis does not work.
It is widely accepted that credibility problems arise when governments privatise and liberalise
previously nationalised utilities (Levy and Spiller 1996; Pereira and Mueller 2001). In these
contexts governments have incentives to delegate the regulation of the newly created markets to
an independent authority because they need to credibly persuade investors that the market
functioning will not be biased by the nationalisation legacy, typically in favour of the former
state-controlled monopolist. But take the case of electricity. Independent regulators are an

19
institutional solution that is popular indeed, but by no means universal. In Germany and
Austria, for example, electricity market regulation is carried out directly by the government, and
in several other countries, including France, Belgium and Ireland, the independence of the
regulators is seen as questionable (Bergman et al. 1999). This evidence is not consistent with the
credibility hypothesis.
However, it is fair enough that "one can't beat something with nothing" (Jon Elster, cited in
Green and Shapiro 1994: 183-184). In the rest of the paper, therefore, I will try to make some
tentative speculations on why governments delegate to independent agencies.
First of all, let me stress that the major default of both principal-agent theory and the
credibility hypothesis in this context seems to be their incompleteness. They catch only a part of
the problem. Agency losses and credibility concerns do matter, but only if they are integrated in
a broader framework. The good news is that such a framework exists, even though only at an
embryonic stage of development. It seems to me that we get a fuller picture if we take a political
transaction-cost approach.
Agency and credibility problems are transaction costs, but they are not the only ones. These
include also decision-making costs (which arise from both bargaining and technical complexity),
the risk of blame, and uncertain political property rights (Horn 1995; Dixit 1996; Epstein and
O'Halloran 1999; Moe 1990, 1995).
That decision-making is costly is well-known. First, it often requires a good deal of expertise,
which politicians typically lack. However, as we have mentioned above, lack of technical
knowledge may well explain some type of delegation, but not the granting of extensive
independence. In fact, a legislature can solve this problem even without the help of ordinary
bureaucracy. Notably, it has been shown that the committee structure of the US Congress arises
mainly from the need of expertise (Baron 2000). As information is a public good, politicians
would not have incentives to invest on it without compensations. The committee structure
provides this compensation: committee members are accorded political property rights over a
given policy area in exchange of their supply of knowledge over it.
The second reason why decision-making is costly is that bargaining is unavoidable. As
bargaining is costly (Milgrom and Roberts 1990: 72-77; Levi 1988: 28-29), in an area characterised
by important conflicts of interests, a legislature may prefer delegating the competence to take
decisions rather than carrying on in endless and maybe useless discussions (Horn 1995: 14-15).
A further cost derives from social choice instability (Arrow 1963), but it has been
demonstrated that legislatures can adapt to this problem without major difficulties (Shepsle
1979; Shepsle and Weingast 1981). In addition, delegation may not be a solution, as it has been

20
shown that bureaucracies "appear to have the same unavoidable kind of 'pathologies' as
institutions like legislatures and voting systems" (Hammond and Miller 1985: 24).
In conclusion, decision-making costs are likely to increase the willingness of politicians to
delegate authority to independent agencies, but they are definitely not enough to explain such
delegation.
Another transaction cost associated to political decision-making is the risk of blame (Fiorina
1985). This happens especially in policy areas where things are likely to go wrong every now
and then, even if decisions are taken with the greatest care. Food and drug safety is a case in
point11. Given this context, politicians have incentives to delegate competencies because these
policies have only costs for them. Again, however, this factor is unlikely to fully explain
delegation, but should play some role.
The most compelling reason for delegation to independent agencies seems to be political
uncertainty12 (Moe 1990, 1991, 1995; Moe and Caldwell 1994; see also Christensen 1999 and
Bendor, Galzer and Hammond 2001: 264-265). Let me try to unfold Moe's argument.
The starting point is a statement on which most political scientists (most people actually) will
happily agree, i.e. that politics is about struggling for power, or public authority. According to
Moe (1995: 124), "the right to exercise public authority can be thought of as a property right of
sorts. These rights are used () to make choices about policy and the structure of government".
The problem is that, unlike in the economy, in a democratic political system these rights, which
are political property rights, are uncertain because they are bound to be periodically reallocated.
Further, this reallocation will be operated without any compensation for the losers (Moe 1990:
227).
Political uncertainty constitutes a transaction cost for politicians because it prevents them
from making profitable exchanges with their forward-looking constituents. Constituents are
likely to care about this sort of matters because political exchanges are typically not
simultaneous (Horn 1995: 16): constituents support politicians, and then expect their future
support. Moe assumes that politicians want their policies to last to please powerful interest
groups. This assumption, however, is not necessary here, as it seems perfectly plausible that
politicians, no matter where their preferences come from, want their policies to last.

11 This can be illustrated by the recent case of Bayer's Baycol/Lipobay, a cholesterol lowering drug that has caused
several deaths despite having been approved by both European and American regulators. The BSE problem is
another instructive example.
12 Horn (1995) and others (like Alt and Alesina 1996) call this "the commitment problem". In my opinion, this

formulation is misleading because it reminds a related but different matter, that of time-inconsistent policies leading
to credibility problems discussed above. The difference will be clear in the discussion, so let me just say here that the
credible commitment problem derives from the time-inconsistency of preferences, whereas political uncertainty arise
because political actors stay in power only for a limited period of time.

21
 Given this context, one should expect politicians to find a method to make their policy
choices last well beyond the moment, which can be postponed but not avoided, when they will
lose their political property rights over a given policy area. One way to do this is delegating
authority to agencies and making them independent from political principals, both present and
future. Current principals lose some control when they are in office, but this will ensure that
their choices will last longer. In support to this hypothesis, it can be noted that central bank
independence has been found to be positively correlated with frequent change of government
between competing political parties (Bagheri and Habibi 1998).
Political uncertainty is not the only factor that gives to politicians incentives to delegate.
There are also other problems, which Moe labels "technical" and correspond roughly to the other
transaction costs discussed above. However, let me stress again that political uncertainty, in this
perspective, is the only factor that explains the granting of independence. I have sufficiently
justified, I think, that complexity leading to a need for expertise cannot explain independence,
but credibility and blame shifting need some further arguments.
The point here is that political uncertainty is a theoretically sounder explanation of
independence than both credibility and blame shifting. This can be understood by thinking at
the rationale behind independence for each of these three arguments. For blame shifting,
independence is a sort of shield for politicians, who can shift the responsibility for some
unfortunate accident, such as the marketing of a lethal drug, or of mad beef, on an agency that is
independent from them. However, for this shifting to be possible, the agency does not need to
be really independent, but only to be believed to be so. Thus, politicians can probably just create
a specialised agency, give it an "independent" label, and then keep all sorts of less visible control
mechanisms, such as control over appointments and dismissals.
A similar argument can be made for the credibility problem, even though only to a lesser
extent. Investors (if we consider that they are the main target of credibility measures [Levy and
Spiller 1996]), are likely to be better informed than consumers. However, one should not
overlook that until recently the exact meaning of independence for regulatory agencies has been
quite obscure even for academic specialists of regulatory policy, and still is controversial. Note
that even measures of central bank independence, which have a much longer and more
consolidated tradition than measures of regulatory agencies independence, are far from
consensual, as is shown by recent debates (Banaian, Burdekin and Willet 1998; Mangano 1998;
Forder 2001b; Elgie 2001b). The situation for independent regulatory agencies is bound to be
much more confused. Therefore, investors are bound to follow some sort of rule of thumb when
judging whether their favourite regulator is independent enough, and the official "independent"
label may well suffice them.

22
 Political principals, then, might well have incentives to give only prima facie independence to
the regulatory agencies they create, if the problem is credibility and/or the risk of blame.
The story is different for political uncertainty. What is at stake here is the survival of policy
decisions beyond the term of office. Politicians need independence to prevent future holders of
their current political property rights to undo their policy choices. But to achieve this goal,
symbolic independence is not enough, because future decision-makers will be able to use all the
room for manuver that is left to them. Thus, to cope with the political uncertainty problem,
real independence is needed.
To resume the argument in a sally, then, you can definitely fool consumers, you can probably
fool investors, but you can definitely not fool yourself and those who will sit on your chair when
you will be gone. This is why I argue that political principals have more incentives to accord
substantive independence when they face political uncertainty rather than when the problem is
credibility and/or the risk of blame.
On the other hand, however, there is another mechanism that one must take into account,
which works in the opposite direction, namely the nearly unavoidable need for compromise
(Moe 1990, 1995). This means that any decision to delegate will be moderated to the extent that a
compromise is necessary. Unfortunately, there is some evidence against this assumption. Moser
(1999) finds a positive relationship between bicameralism and central bank independence for
OECD countries. As long as bicameralism increases the need for compromise, this is not
consistent with the assumption. It should be noted, however, that this measure does not take
into account the role of parties. Doing this, for example through the notion of veto players
(Tsebelis 1995a, 1995b, 2000) would possibly change the figures.
What about agency problems? Moe is of course perfectly aware of the agency losses that are
bound to arise from such a delegation, but thinks that they can be effectively contained by
choosing agents that care about their reputations (Moe 1995: 134-135). In the light of the
principal-agent literature discussed above this claim is surely controversial, but by no means
bizarre. Majone (1996b, 1997b) also considers that reputation plays a key role for independent
agencies. The point here is that reputation is likely to play a much greater role for independent
agencies than for ordinary bureaucracy. This argument can be sustained by looking at the
literature on central banks.
Curiously, although delegation to independent central banks is, in theory, subject to the same
agency problems as delegation to bureaucracy and especially to independent agencies, this does
not seem to be an issue in the literature (for an overview, see Berger, de Haan and Eijffinger
2000). It seems widely accepted, at least implicitly, that independent central banks do not shirk
(i.e. respect their implicit contract with political principals). It has long been believed that

23
selection of a conservative central banker was a sufficient provision to ensure compliance, even
though the result will be suboptimal from the government's point of view because the central
bank's responses to unanticipated disturbances will be distorted (Rogoff 1985; Herrendorf and
Lockwood 1997: 476-477). Note that the subobtimal result is not a consequence of moral hazard,
but of the inevitable trade-off between credibility and flexibility. Moreover, it should be stressed
here that the notion of moral hazard is somewhat ambiguous in this context because, for
independence to be an effective means, political principals have to appoint central bankers that
will not act as perfect agents, in the sense that they are selected precisely because their
preferences do not mirror those of the principals (Rogoff 1985; Lohmann 1998: 360; Majone 2001:
69; Bendor, Glazer and Hammond 2001: 259).
Only recently has delegation to central banks been explicitly modelled as a principal-agent
relationship where the government needs to design a sophisticated incentive structure (a
contract) to achieve optimal results (Walsh 1995). The problem, again, is not moral hazard, but
the need to reconcile credibility and flexibility (Muscatelli 1998: 529). Moreover, the form that
these contracts take in real world is often inflation-targeting regimes (Svensson 1997), where
governments fix the inflation rate they wish, and central banks are then free to choose the means
to achieve this target. Note that such a contract leaves much room for moral hazard because the
sanctions for non-compliance are limited, as recent independence calculations show (Elgie 1998;
Surel 2000), but this does not seem to be considered as a problem in the literature.
To conclude this point, then, it seems that central bank scholars do not consider that agency
losses are a major problem for monetary policy-making through delegation. I see two
possibilities here: either central bank scholars have missed a key point, or indeed delegation to
independent central banks does not give rise to agency problems. Given the enormous literature
on central banks, I tend to believe that the second is true.
It should not be overlooked that "the relation between the central bank and the legislators is
just a special form of delegated policy making" (Moser 1999: 1572). The question then is: why
does not the principal-agent relationship between independent central banks and political
principals give rise to agency problems, in contrast to the whole principal-agent theory? The
answer could be in the peculiar features of central banks, which make them care about their
reputation (Lockwood, Miller and Zhang 1996). Central banks have long time-horizon and low
discount of future (because of their insulation from electoral considerations), high visibility
(because of their special status), and a clear mandate (keep inflation low) that makes deviations
easily detectable. These characteristics are such that the reputation mechanism is enough to
make the contract self-enforceable (Milgrom and Roberts 1992: 139-140; Dixit 1996: 71-72; Kreps
1990: 116).

24
 Independent agencies are different from central banks, but are closer to them than to
ordinary bureaucracy. In fact, both are non-majoritarian institutions (Majone 1994b: 118), i.e.
public bodies that are not directly accountable either to voters or to elected politicians. It can be
considered, then, that the heads of independent agencies are similar to Rogoff's conservative
central bankers (Majone 2001: 67), and that their ongoing interaction with regulated firms, which
is often inherent to regulatory policy (Majone 1997b: 149), in combination with their long time-
horizon, high visibility, and a clear mission, activates the reputation mechanism that makes
them respect the original terms of their contract with the government. In other words, they do
not shirk despite their independence, unlike ordinary bureaucracy, which lacks those particular
characteristics.
It can be argued then that the reputation mechanism works quite well for independent
agencies, or at least much better than for bureaucracy. Thus, the assumption that agency losses
are not so relevant for independent agencies seems plausible.
Another justification for this assumption can be found in a recent paper by Majone (2001).
Majone contests the principal-agent nature of the relationship between political principals and
independent agencies. Although adverse selection and moral hazard problems are present, he
claims, they are not central, and the relationship should be analysed as based on a fiduciary
principle. As Schlicht (2001: 80) clarifies, in a fiduciary relationship "the fiduciary acts in the
interest of his client, driven by responsibility, his own preferences, and, perhaps, rather diffuse
reputational incentives". According to Majone, independent agencies act as fiduciaries, and not
as agents, because some political property rights have been transferred to them, i.e. rights to
exercise public authority in a given policy area. Ordinary agents, on the other hand, do not have
political property rights, which remain attached to the political principals. The distinction
between an agency and a fiduciary relationship is subtle indeed (Schlicht 2001), but
conceptualising independent agencies in these terms implies less pessimistic conclusions about
accountability problems, because fiduciaries are expected to be less prone to misbehaviour as
they integrate responsibility concerns.
Having said this, however, there is still pretty much work left. In particular, what we are
interested in are variations in the extent of delegation to independent agencies. What should be
clarified, then, is how the "political uncertainty hypothesis" allows us to make predictions about
both cross-national and cross-sectoral variations in delegation.
Let me first resume the model.
First, there are several technical reasons that explain that politicians decide not to do
regulatory policy themselves, but to delegate it to a bureaucratic agent. These are the credibility
problem, the risk of blame, and decision-making costs, which include bargaining and

25
complexity/expertise. When these factors increase, so does delegation. Agency losses, although
present, are much less relevant than for ordinary bureaucracy and are thus excluded from the
model.
Second, political uncertainty explains why politicians do not delegate regulatory
competencies to ordinary bureaucracy, or to a specialised but fully accountable agency (which,
as we have seen, would be a perfectly reasonable option), but to independent agencies. They do
so because they want their policies to survive even when they will be out of business. The need
to compromise, however, will limit the extent of this independence.
Political uncertainty is likely to explain mainly cross-national variation. In countries where
political uncertainty is higher, delegation should be more extensive. The credibility problem and
the need for compromise can be related to national but also sectoral characteristics. The
remaining variables, on the other hand, should explain cross-sectoral variation only. Bargaining,
the need for expertise, and risk of blame, in fact, seem linked mainly with sectoral features.
To be sure, this model is extremely schematic and underdeveloped but, I believe, is not
without merits. In particular, it tries to use the insights of a well-established theory to explain a
phenomenon to which only recently has systematic attention been accorded. Further, unlike
more simple (simplistic) arguments, it has the potential to explain both cross-national and cross-
sectoral variations in delegation of regulatory competencies. Its value, however, can only be
proved by theoretical advances and accurate empirical testing. This belongs to my current
research agenda, but I hope that other scholars too will find these arguments interesting and
useful.

4 Conclusion

In this paper I have argued that principal-agent models, which have only recently been
applied to European political systems, provide useful but insufficient insights into our
understanding of independent regulatory agencies in Western Europe. This is due to the
overwhelming focus of principal-agent theory on the consequences of delegation, at the
expenses of the causes. Indeed, the latter are much more puzzling for delegation to independent
agencies than to ordinary bureaucracy. In fact, politicians often design regulatory agencies so as
to make them independent, although principal-agent theory points to the fact that the basic
problem for political principals is usually how to control bureaucratic agents. This means that
the simple explanations invoked to explain delegation to bureaucracy are not useful here.

26
 An alternative explanation has been suggested that explicitly takes into account a whole set
of political transaction costs that political actors are likely to take into account when designing
regulatory institutions. More specifically, the importance of political uncertainty in explaining
independence has been stressed.
It is patent that the suggested model needs much more refinement, but I believe that it
catches the essence of the problem that politicians face when they design regulatory institutions.
In particular, what needs to be clarified is how the different transaction costs interact to explain
both cross-national and cross-sectoral variation in delegation to independent agencies. Further,
empirically testable hypotheses need to be derived from the general argument. Although these
matters are beyond the scope of this paper, they do belong to my research agenda.
To conclude, let me stress that rational choice, fortunately, is not the only game in town.
Historical institutionalism also has its say, and challenges directly rational choice explanations
(Thatcher 2001). In this perspective, it is considered that at least four contextual factors play a
major role, namely policy learning, state traditions, political leadership, and the broader
institutional context of West European states. At this stage, however, there is not a fully-
specified historical-institutionalist theory of delegation to independent agencies, but only a
research agenda. In fact, this state is not dissimilar from that of the transaction-cost approach
proposed here. In addition to further theoretical work, what both approaches urgently need is
systematic empirical research, which is currently lacking but will eventually assess their relative
merits.

References

Alt, James E. and Alberto Alesina (1996), "Political Economy: An Overview", in: Goodin, Robert E. and
Hans-Dieter Klingemann (eds.), A New Handbook of Political Science, Oxford, Oxford University
Press, pp. 645-674
Andeweg, Rudy B. (2000), "Ministers as Double Agents? The Delegation Process Between Cabinet and
Ministers", in: European Journal of Political Research, 37(3), pp. 377-395
Arrow, Kenneth J. (1963), Social Choice and Individual Values, 2nd Edition, New York, John Wiley & Sons
Autorit per l'energia elettrica e il gas (2000), Relazione annuale sullo stato dei servizi e sull'attivit svolta,
Roma, Dipartimento per l'Informazione e l'Editoria
Bagheri, Fatholla M. and Nader Habibi (1998), "Political Institutions and Central Bank Independence: A
Cross-Country Analysis", in: Public Choice, 96, pp. 187-204
Baldwin, Robert and Martin Cave (1999), Understanding Regulation. Theory, Strategy, and Practice, Oxford,
Oxford University Press

27
Balla, Steven J. (1998), "Administrative Procedures and Political Control of the Bureaucracy", in: American
Political Science Review, 92(3), pp. 663-673
Banaian, King, Richard C. K. Burdekin and Thomas D. Willet (1998), "Reconsidering the Principal
Components of Central Bank Independence: The More the Merrier?", in: Public Choice, 97, pp. 1-12
Baron, David P. (2000), "Legislative Organization with Informational Committees", in: American Journal of
Political Science, 44(3), pp. 485-505
Bawn, Kathleen (1995), "Political Control versus Expertise: Congressional Choices about Administrative
Procedures", in: American Political Science Review, 89(1), pp. 62-73
Bawn, Kathleen (1997), "Choosing Strategies to Control the Bureaucracy. Statutory Constraints, Oversight,
and the Committee System", in: Journal of Law, Economics, and Organization, 13(1), pp. 101-127
Bendor, J., A. Glazer and T. Hammond (2001), "Theories of Delegation", in: Annual Review of Political
Science, 4, pp. 235-269
Berger, Helge, Jakob de Haan and Sylvester C. W. Eijffinger (2000), Central Bank Independence: An Update of
Theory and Evidence, Discussion Paper No 2353, London, Centre for Economic Policy Research
Bergman, Lars et al. (1999), A European Market for Electricity?, London/Stockholm, CEPR/SNS
Bergman, Torbjrn (2000), "The European Union as the Next Step of Delegation and Accountability", in:
European Journal of Political Research, 37(3), pp. 415-429
Bernhard, William (1998), "A Political Explanation of Variations in Central Bank Independence", in:
American Political Science Review, 92(2), pp. 311-327
Calvert, Randall L., Mathew D. McCubbins and Barry R. Weingast (1989), "A Theory of Political Control
and Agency Discretion", in: American Journal of Political Science, 33(3), pp. 588-611
Cassese, Sabino e Claudio Franchini (eds.) (1996), I garanti delle regole, Bologna, Il Mulino
Christensen, Jrgen Grnnegaard (1999), Bureaucratic Autonomy as a Political Asset, Paper presented at the
workshop "Politicians, Bureaucrats, and Institutional Reform", ECPR Joint Sessions of Workshops,
Mannheim, 26-31 March 1999
Coleman, James S. (1990), Foundations of Social Theory, Cambridge (MA), The Belknap Press of Harvard
University Press
Cukierman, Alex, Steven B. Webb and Bilin Neyapti (1992), "Measuring the Independence of Central
Banks and Its Effect on Policy Outcomes", in: World Bank Economic Review, 6(3), pp. 353-398
Cukierman, Alex and Steven B. Webb (1995), "Political Influence on the Central Bank International
Evidence", in: World Bank Economic Review, 9(3), pp. 397-423
Dixit, Avinash K. (1996), The Making of Economic Policy. A Transaction-Cost Politics Perspective, Cambridge
(MA), The MIT Press
Eberlein, Burkard (2000), "Regulierung und die Konstitution von Mrkten in Europa", in : Czada, Roland
und Susanne Ltz (eds.), Die Politische Konstitution von Mrkten, Wiesbaden, Westdeutscher Verlag,
pp. 89-106
Elgie, Robert (1998), "Democratic Accountability and Central Bank Independence: Historical and
Contemporary, National and European Perspectives", in: West European Politics, 21(3), pp. 53-76

28
Elgie, Robert (2001a), Agent Centred, Principal-Centred and Mixed Accounts of Delegation: An Application to the
French Case, Mimeo, Dublin City University
Elgie, Robert (2001b), "Democratic Accountability and Central Bank Independence: A Reply to Various
Critics", in: West European Politics, 24(1), pp. 217-221
Epstein, David and Sharyn O'Halloran (1994), "Administrative Procedures, Information, and agency
Discretion", in: American Journal of Political Science, 38(3), pp. 697-722
Epstein, David and Sharyn O'Halloran (1999), Delegating Powers. A Transaction Cost Politics Approach to
Policy Making Under Separate Powers, Cambridge, Cambridge University Press
Ferejohn, John (1999), "Accountability and Authority: Toward a Theory of Political Accountability", in:
Przeworski, Adam, Susan C, Stokes and Bernard Manin (eds.), Democracy, Accountability, and
Representation, Cambridge, Cambridge University Press, pp. 131-153
Fiorina, Morris P. (1985), "Group Concentration and the Delegation of Legislative Authority", in: Noll,
Roger G. (ed.), Regulatory Policy and the Social Sciences, Berkeley, University of California Press, pp.
175-197
Forder, James (1998), "Central Bank Independence Conceptual Clarifications and Interim Assessment",
in. Oxford Economic Papers, 50, pp. 307-334
Forder, James (2001a), "The Theory of Credibility and the Reputation-Bias of Policy", in: Review of Political
Economy, 13(1), pp. 5-25
Forder, James (2001b), "Some Methodological Issues in the Statutory Characterisation of Central Banks",
in: West European Politics, 24(1), pp. 202-216
Gentot, Michel (1994), Les autorits administratives indpendantes, Paris, Montchrestien
Gilardi, Fabrizio (2001), Policy Credibility, Interdependence, and Delegation of Regulatory Competencies to
Independent Agencies: A Comparative Empirical Consideration, Paper presented to the workshop on
"National Regulatory Reform in an Internationalised Environment", ECPR Joint Sessions of
Workshops, Grenoble, 6-11 April 2001
Giraudi, Giorgio, e M. Stella Righettini (2001), Le autorit amministrative indipendenti. Dalla democrazia della
rappresentanza alla democrazia dell'efficienza, Roma-Bari, Laterza
Green, Donald P. and Ian Shapiro (1994), Pathologies of Rational Choice Theory, New Haven, Yale University
Press
Hammond, Thomas H. and Gary J. Miller (1985), "A Social Choice Perspective on Expertise and Authority
in Bureaucracies", in: American Journal of Political Science, 29, pp. 1-28
Herrendorf, Berthold and Ben Lockwood (1997), "Rogoff's 'Conservative' Central Banker Restored", in.
Journal of Money, Credit, and Banking, 29(4), pp. 476-495
Hopenhayn, Hugo and Susanne Lohmann (1996), "Fire-Alarm Signals and Political Oversight of
Regulatory Agencies", in: Journal of Law, economics, and Organization, 12(1), pp. 196-213
Horn, Murray J. and Kenneth Shepsle (1989), "Commentary on 'Administrative Arrangements and the
Political Control of Agencies': Administrative Process and Organizational Form as Legislative
Responses to Agency Costs", in: Virginia Law Review, 75, pp. 499-508

29
Horn, Murray J. (1995), The Political Economy of Public Administration. Institutional Choice in the Public Sector,
Cambridge, Cambridge University Press
Huber, John D. (2000), "Delegation to Civil Servants in Parliamentary Democracies", in: European Journal of
Political Research, 37(3), pp. 397-413
Huber, John D. and Arthur Lupia (2001), "Cabinet Instability and Delegation in Parliamentary
Democracies", in: American Journal of Political Science, 37(3), pp. 18-33
Huber, John D. and Charles R. Shipan (2000), "The Costs of Control: Legislators, Agencies, and
Transaction Costs", in: Legislative Studies Quarterly, 25(1), pp. 25-52
Huber, John D. and Charles R. Shipan (2001), Political Control of State in Modern Democracies, unpublished
book manuscript (downloaded at http://www.columbia.edu/~jdh39/book.pdf)
Huber, John D., Charles R. Shipan and Madelaine Pfahler (2001), Legislatures and Statutory Control of
Bureaucracy, in: American Journal of Political Science, 45(2), pp. 330-345
Jacobs, Scott H. (2000), Regulatory Governance: Improving the Institutional Basis for Sectoral Regulation, Paris,
OECD
Keefer, Philip and David Stasavage (2000), Bureaucratic Delegation and Political Institutions: When Are
Independent Central Banks Irrelevant?, Policy Research Working Paper 2356, Washington, The World
Bank
Kiewiet, D. Roderick and Mathew D. McCubbins (1991), The Logic of Delegation. Congressional Parties and
the Appropriation Process, Chicago, The University of Chicago Press
Kreps, David M. (1990), "Corporate Culture and Economic Theory", in: Alt, James A. and Kenneth A.
Shepsle (eds.), Perspectives on Positive Political Economy, Cambridge, Cambridge University Press,
pp. 90-143
La Spina, Antonio e Giandomenico Majone (2000), Lo Stato regolatore, Bologna, Il Mulino
Levi, Margaret (1988), Of Rule and Revenue, Berkeley, University of California Press
Levy, Brian and Pablo T. Spiller (1996), "A Framework for Resolving the Regulatory Problem", in: Levy,
Brian and Pablo T. Spiller (eds.), Regulations, Institutions, and Commitment. Comparative Studies of
Telecommunications, Cambridge, Cambridge University Press, pp. 1-35
Lockwood, Ben, Marcus Miller and Lei Zhang (1996), "Central Banks and Reputation: Some Transatlantic
Contrasts", in: Canzonieri, Matthew B., wilfred J. Ethier and Vittorio Grilli (eds.), The New
Transatlantic Economy, Cambridge, Cambridge University Press, pp. 236-264
Lohmann, Susanne (1998), "Institutional Checks and Balances and the Political Control of the Money
Supply", in: Oxford Economic Papers, 50, pp. 360-377
Longley, Neil (1998), "Legislative Systems with Absolute Party Discipline: Implications for the agency
Theory Approach to the Constituent-Legislator Link", in: Public Choice, 97, pp. 121-140
Lupia, Arthur and Mathew McCubbins (1994), "Learning from Oversight: Fire Alarms and Police Patrols
Reconstructed", in: Journal of Law, Economics, and Organization, 10(1), pp. 96-125
Lupia, Arthur and Mathew McCubbins (1998), The Democratic Dilemma. Can Citizens Learn What They Need
To Know?, Cambridge, Cambridge University Press

30
Lupia, Arthur and Mathew McCubbins (2000), "Representation or Abdication? How Citizens Use
Institutions to Help Delegation Succeed", in: European Journal of Political Research, 37/3, pp. 291-307
Ltz, Susanne und Roland Czada (2000), "Marktkonstitution als politische Aufgabe: Problemskizze und
Theorieberblick", in : Czada, Roland und Susanne Ltz (eds.), Die Politische Konstitution von
Mrkten, Wiesbaden, Westdeutscher Verlag, pp. 9-35
Majone, Giandomenico (1994a), "The Rise of the Regulatory State in Europe", in: West European Politics,
Vol. 17, No 3, pp. 77-101
Majone, Giandomenico (1994b), "Independence versus Accountability? Non-Majoritarian Institutions and
Democratic Government in Europe", in: Hesse, Joachim Jens and Theo A. J. Toonen (eds.), The
European Yearbook of Comparative Government and Public Administration, Vol. I/1994, Baden-Baden,
Nomos, pp. 117-140
Majone, Giandomenico (1996a), Regulating Europe, London, Routledge
Majone, Giandomenico (1996b), Temporal Consistency and Policy Credibility: Why Democracies Need Non-
Majoritarian Institutions, Working Paper RSC No 96/57, European University Institute
Majone, Giandomenico (1997a), "From the Positive to the Regulatory State: Causes and Consequences of
Changes in the Mode of Governance", in: Journal of Public Policy, Vol. 17, No 2, pp. 139-167
Majone, Giandomenico (1997b), "Independent Agencies and the Delegation Problem: Theoretical and
Normative Dimensions", in: Steuenberg, Bernard and Frans van Vught (eds.), Political Institutions
and Public Policy, Dordrecht, Kluwer Academic Publishers, pp. 139-156
Majone, Giandomenico (2001), "Nonmajoritarian Institutions and the Limits of democratic Governance: A
Political Transaction-Cost Approach", in: Journal of Institutional and Theoretical Economics, 157, pp.
57-78
Mangano, Gabriel (1998), "Measuring Central Bank Independence: A Tale of Subjectivity and of Its
Consequences", in: Oxford Economic Papers, 50, pp. 468-492
McCubbins, Mathew D. and Thomas Schwartz (1984), "Congressional Oversight Overlooked: Police
Patrols versus Fire Alarms", in: American Journal of Political Science, 28(1), pp. 165-179
McCubbins, Mathew D., Roger G. Noll and Barry R. Weingast (1987), "Administrative Procedures as
Instruments of Political Control", in: Journal of Law, Economics, and Organisation, 3(2), pp. 243-277
McCubbins, Mathew D., Roger G. Noll and Barry R. Weingast (1989), "Structure and Process, Politics and
Policy: Administrative arrangements and the Political Control of Agencies", in: Virginia Law Review,
75, pp. 431-482
Milgrom, Paul and John Roberts (1990), "Bargaining Costs, Influence Costs, and the Organization of
Economic Activity", in: Alt, James A. and Kenneth A. Shepsle (eds.), Perspectives on Positive Political
Economy, Cambridge, Cambridge University Press, pp. 57-89
Milgrom, Paul and John Roberts (1992), Economics, Organization and Management, Englewood Cliffs,
Prentice-Hall
Mitchell, Paul (2000), Voters and Their Representatives: Electoral Institutions and Delegation in
Parliamentary Democracies, in: European Journal of Political Research, 37(3), pp. 335-351

31
Moe, Terry M. (1984), "The New Economics of Organization", in: American Journal of Political Science, 28,
pp. 739-777
Moe, Terry M. (1987), "An Assessment of the Positive Theory of 'Congressional Dominance'", in: Legislative
Studies Quarterly, 12(4), pp. 475-520
Moe, Terry M. (1990), "Political Institutions: The Neglected Side of the Story", in: Journal of Law, Economics,
and Organisation, 6, Special Issue, pp. 213-105
Moe, Terry M. (1991), "Politics and the Theory of Organization", in: Journal of Law, Economics, and
Organization, 7(Special Issue), pp. 106-129
Moe, Terry M. (1995), "The Politics of Structural Choice: Toward a Theory of Public Bureaucracy", in:
Williamson, Oliver E. (1995), Organization Theory. From Chester Barnard to the Present and Beyond,
Expanded Edition, Oxford, Oxford University Press, pp. 116-153
Moe, Terry M. and Michael Caldwell (1994), "The Institutional Foundations of Democratic Government: A
Comparison of Presidential and Parliamentary Systems" in: Journal of Institutional and Theoretical
Economics, 150(1), pp. 171-195
Moser, Peter (1999), "Checks and Balances, and the Supply of Central Bank Independence", in: European
Economic Review 43, pp. 1569-1593
Muscatelli, Anton (1998), "Optimal Inflation Contracts and Inflation Targets with Uncertain Central bank
Preferences: Accountability through Independence?", in. The Economic Journal, 108, pp. 529-542
Neven, Damien J. and Pascal Raess (1999), Politique de la concurrence en Suisse (1996-1998). Evaluation et
perspectives d'volution, Cahiers de recherches conomiques No 9911, Dpartement d'conomtrie et
d'conomie politique, Universit de Lausanne
OECD (1999), Relationship between Regulators and Competition Authorities, DAFFE/CLP(99)8, Paris, OECD
Ogul, Morris S. and Bert A. Rockman (1990), Overseeing Oversight: New Departures and Old Problems,
in: Legislative Studies Quarterly, 25(1), pp. 5-24
Pereira, Carlos and Bernardo Mueller (2001), Credibility and the Design of Regulatory Agencies in Brazil,
Paper presented to the ECPR General Conference, Canterbury (UK), 6-8 September 2001
Persson, Torsten and Guido Tabellini (2000), Political Economics. Explaining Economic Policy, Cambridge
(MA), The MIT Press
Pratt, John W. and Richard J. Zeckhauser (1985), "Principals and Agents: An Overview", in: Pratt, John W.
and Richard J. Zeckhauser (eds.), Principals and Agents: The Structure of Business, Boston, Harvard
Business School Press, pp. 1-35
Robinson, Glen O. (1989), "Commentary on 'Administrative Arrangements and the Political Control of the
Bureaucracy': Political Uses of Structure and Process", in: Virginia Law Review, 75, pp. 483-498
Rogoff, Kenneth (1985), "The Optimal Degree of Commitment to an Intermediate Monetary Target", in:
Quarterly Journal of Economics, 100, pp. 1169-1189
Saalfeld, Thomas (2000), "Members of Parliament and Government in Western Europe: Agency Relations
and Problems of Oversight", in: European Journal of Political Research, 37(3), pp. 353-376
Schlicht, Ekkehart (2001), "Fiduciaries, Servants, Agents, and Situational Effects", in: Journal of Institutional
and Theoretical Economics, 157, pp. 79-82

32
Shepsle, Kenneth A. (1979), "Institutional Arrangements and Equilibrium in Multidimensional Voting
Models", in: American Journal of Political Science, 23(1), pp. 27-59
Shepsle, Kenneth A. and Barry R. Weingast (1981), "Structure-Induced Equilibrium and Legislative
Choice", in: Public Choice, 37, pp. 503-519
Spulber, Daniel F. and David Besanko (1992), "Delegation, Commitment, and the Regulatory Mandate", in:
Journal of Law, Economics, and Organization, 8(1), pp. 126-154
Stiglitz, Joseph (1987), "Principal and Agent", in: Eatwell, John, Murray Milgate and Peter Newman (eds.),
The New Palgrave: A Dictionary of Economics, Vol. 3, London, Macmillan, pp. 966-972
Strm, Kaare (2000), Delegation and Accountability in Parliamentary Democracies, in: European Journal
of Political Research, 37(3), pp. 261-289
Surel, Yves (2000), "Comparer des sentiers institutionnels. Les rformes des Banques centrales au sein de
l'Union europenne", in. Revue Internationale de Politique Compare, 7(1), pp. 135-166
Svensson, Lars E. O. (1997), "Optimal Inflation Targets, 'Conservative' Central banks, and Linear Inflation
Contracts", in. American Economic Review, 87(1), pp. 98-114
Thatcher, Mark (1994), "Regulatory Reform in Britain and France: Organizational Structure and the
Extension of Competition", in: Journal of European Public Policy, 1(3), pp. 441-464
Thatcher, Mark (1998), "Institutions, Regulation, and Change: New Regulatory Agencies in the British
Privatised Utilities", in: West European Politics, 21(1), pp. 120-147
Thatcher, Mark (2001), Delegation to Independent Regulatory Agencies in Western Europe, Paper presented to
the workshop on "National Regulatory Reform in an Internationalised Environment", ECPR Joint
Sessions of Workshops, Grenoble, 6-11 April 2001
Tsebelis, George (1995a), "Decision Making in Political Systems: Veto Players in Presidentialism,
Parliamentarism, Multicameralism and Multipartyism", in: British Journal of Political Science, Vol. 25,
No 3, pp. 289-325
Tsebelis, George (1995b), "Veto Players and Law Production in Parliamentary Democracies", in: Dring,
Herbert (ed.), Parliaments and Majority Rule in Western Europe, Frankfurt, Campus Verlag
Tsebelis, George (2000), "Veto Players and Institutional Analysis", in: Governance, Vol. 13, No 4, pp. 441-
474
Walsh, Carl E. (1995), "Optimal Contracts for Central Bankers", in: American Economic Review, 85(1), pp.
150-167
Weingast, Barry R. (1984), "The Congressional-Bureaucratic System: A Principal-Agent Perspective (With
Applications to the SEC)", in: Public Choice, 44, pp. 147-191
Weingast, Barry R. and Mark J. Moran (1983), "Bureaucratic Discretion or Congressional Control?
Regulatory Policymaking by the Federal Trade Commission", in: Journal of Political Economy, 91(5),
pp. 765-307
Williamson, Oliver E. (1985), The Economic Institutions of Capitalism, New York, The Free Press

33