Discovering the Dark Side of Power: The Principal’s Moral Hazard in Political-Bureaucratic Relations

Principal agent (PA) is among the most prominent concepts for analyzing the relationship between politics and bureaucracy. Nonethelesss, the inherent bias of PA scholars to attribute moral hazard almost exclusively to the agent, usually referred to as “bureaucratic drift”, requires re-examination. Building on the spare literature in which moral hazard of the principal is considered, this paper provides empirical evidence for a neglected aspect of the PA concept. Three cases of German regulatory agencies responsible for drug control, financial services and rail safety are analyzed in critical situations which were largely perceived as bureaucratic failures. The analysis reveals that a good deal of these failures, ranging from negligence to suppressing crucial information, has to be attributed to the political principal. This is called the dark side of power because the intention is to shift blame or to dodge political responsibility. Turning conventional PA reasoning upside down, the conclusion is that the principal’s moral hazard should be considered more routinely as a potential explanation for political-bureaucratic interactions.     

Constitutional Court of the Russian Federation,Ruling of February 8, 2001, No. 15-O

In Nal' chik they are estimating the losses caused at residences during an attack by fighters and are replacing glass in the buildings in the Iskozh neighborhood, located near the third city division of internal affairs, where the fighters held hostages for more than a day.     

Constitutional Court of the Russian Federation,Determination of October 3, 2002, No. 233-O

A group of members of the Public Chamber adopted a petition addressed to the parliament. It contains a proposal to improve the legislation in the sphere of countering extremist activity.