The Behavior of Bureaucrats and the Choice Between Single-Purpose and Multi-Purpose Authorities

Abstract

The constitutional choice between single-purpose and multi-purpose authorities is analyzed in a model describing the local decision-making process as a game between a sponsor, representing the voters, and two bureaus. The bureaus are able to influence public decisions by using private information about production costs. In this context, the bureaus always benefit from coordinated cost reporting, whereas the effect on voter welfare is shown to depend on the sign of the Cournot cross-price-elasticities. Given that collusion is more likely to occur in multi-purpose authorities, the analysis provides some guidelines when choosing between single-purpose and multi-purpose authorities.