The Principal-Agent Problem and Shirking

This article analyses the principle-agent problem that arises in the relationship between politicians and citizens. It is usually believed that politicians elected by residents of the state are supposed to generate higher returns to the citizens by increasing the value of the state assets that are both geographical and political varieties. However this is not always true. According to the paper of Kau and Rubin that we discussed in class, the congressmen who vote ideologically may or may not reflect tastes of the constituencies; this depends on whether politicians will be reflecting their own preferences. They emphasize further that even if congressmen do shirk and act in their own interest, they are punished quickly and therefore this is not of a big empirical issue. However, according to the author of this article, politicians who fail to increase the value of the state assets, are not always booted out, which in turn, manifests the principle agent problem: it is hard for person A to motivate person B not to follow B’s self-interest never mind what the incentives are, and, as a result, congressmen will never reflect tastes of their constituencies:

The same goes for politics and political science, respectively. Politicians will always rob blind the state. They will always manipulate electorates, political parties, legislatures, and the judiciary to induce them to collude in their shenanigans. They will always bribe constituents and legislators to bend the rules. In other words, they will always act in their self-interest. In their defense they can say that the damage from such actions to each citizen is minuscule while the benefits to the politician are enormous. In other words: such misbehavior is the rational, self-interested, thing to do.

Kau and Rubin define this type of behavior as self-interested economic shirking. However, if this is the case, why do citizens cooperate with the politicians and engage in election activity if the politicians follow their own interests in any case? According to the author, the answer is that citizens and politicians are both allied against the state and not set in conflict against each other. In fact, this means that both principles, constituencies, and their agents, congressmen, are concerned with the performance of their individual assets rather than with the performance of the state. While politicians enjoy inflationary perks and pay packages, citizens hire politicians as stock manipulators to generate expectations regarding the future prices of their stakes in the state.