Principal-agent Relationship in the Budgetary Process and the Fiscal Discipline

2016 Fiscal Year Final Research Report

• Project/Area Number: 26380370
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Public finance/Public economy
• Research Institution: Keio University
• Principal Investigator: Terai Kimiko 慶應義塾大学, 経済学部(三田), 教授 (80350213)
• Project Period (FY): 2014-04-01 – 2017-03-31
• Keywords: 予算 / 政治経済学 / シグナリング / 公共事業 / シーリング

Outline of Final Research Achievements

In my theoretical model, a person or an organization who decides the total budget is regarded as a principal, and a person or an organization allocating the budget given to him/her among programs is an agent. When the principal decides the amount of a budget depending on the agent's behavior, there may exist a time-inconsistency problem, which will generate inefficiency. Asymmetric information between the principal and the agent is another source of inefficiency.
I also composed a model in which a budget is spent on public investment. Under some conditions on utility function and production function, the agent can increase the budget he/she gets by engaging in greater corruption. A budget constraint imposed for the final period can limit corruption in each period, and induce efficient investment. Moreover, I showed that a fiscal cap on aggregate spending in the final period alone, though it may appear loose, credibly controls agents.

Free Research Field

公共経済学