Discretionary Authority and Prioritizing in Government Agencies

Abstract

Government agencies have a certain freedom to choose among different possible courses of action. This article studies agency decision making on priorities in a principal-agent framework with multiple tasks. Agency leadership has discretion over part of the agency's budget to incentivize staff in the pickup of cases. The head is concerned not only with society's benefits from the agency's overall performance, but also with the organization's public image. Based on their talent and the contracts offered by the head, staff officials choose which type of task to pursue: complex major cases with an uncertain outcome or basic minor and simple cases with a higher probability of success. We show how the size of the agency's discretionary budget influences both the scale and type of tasks it will engage in. Small changes in the budget can cause extensive restructuring from major to minor tasks, or vice versa, causing social welfare jumps. The mechanism provides overhead authorities with some control over the priorities of supposedly independent agencies. It applies generally to government bureaus with the formal and informal discretion to choose their tasks. Antitrust authorities serve as one illustration of implications for institutional design.