Politicians, Bureaucrats, and Asymmetric Information

In the analysis of the budgetary game between politicians and bureaucrats, the emphasis has been on the politicians' uncertainties about bureaucratic performance and the ensuing advantages enjoyed by nonelected officials. Such a perspective neglects the uncertainties that bureaucrats must confront. This paper models these dual uncertainties-superiors about subordinates, subordinates about superiors-where each party uses its informational advantage strategically. Model 1 assumes a legislature that is sufficiently organized to create a monitoring system and examines the bureau's responses to parametric variations in that system. Model 2 assumes a fully strategic legislature, one able to create an optimal monitoring and incentive structure. The two models have sharply contrasting implications.