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Political Analysis Advance Access originally published online on December 14, 2008
Political Analysis 2009 17(1):25-44; doi:10.1093/pan/mpn011
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© The Author 2008. Published by Oxford University Press on behalf of the Society for Political Methodology. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Discretion Rather than Rules: Choice of Instruments to Control Bureaucratic Policy Making

Sean Gailmard

Travers Department of Political Science, University of California, Berkeley, Berkeley, CA 94720
e-mail: gailmard{at}berkeley.edu (corresponding author)

In this paper I investigate the trade-off a legislature faces in the choice of instruments to ensure accountability by bureaucrats with private information. The legislature can either design a state-contingent incentive scheme or "menu law" to elicit the bureau's information or it can simply limit the set of choices open to the bureaucrat and let it choose as it wishes (an action restriction). I show that the optimal action restriction is simply a connected interval of the policy space. However, this class of instruments is not optimal without some sort of limitation on the set of levers of control available to the legislature. I then analyze one such limitation salient in politics, the legislative principal's inability to commit to honor a schedule of (state contingent) policy choices and transfer payments for a menu law. In this case the optimal action restriction outperforms (in terms of the legislature's welfare) the best available menu law.

Author's note: A previous version of this paper circulated as "Menu Laws and Forbidden Actions." For helpful comments I am grateful to David Austen-Smith, Rui Defigueiredo, Richard McKelvey, John Patty, and Rob Van Houweling and audience members at the 2002 annual meeting of the Midwest Political Science Association and seminar participants in the Political Science Department at the University of California, Berkeley. The conclusions in this paper do not necessarily reflect the views of the National Science Foundation.


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