APPLICATIONS OF PRINCIPAL-AGENT MODELS TO GOVERNMENT CONTRACTING AND ACCOUNTABILITY DECISION MAKING

ABSTRACT

This paper surveys literature from Economics, Accounting, and Management to address theoretical issues in Public Administration regarding government provided services in order to contribute to a formal connection between principal-agent models in these disciplines and public policy administration decision-making. In particular, it addresses the question: What theoretical properties of the services themselves might guide (a) the choice of producer of the services (government or outsourcing firm/contractor), and (b) the accountability imposed for the work produced. It is found that a theoretical framework of principal-agent models that includes the decision of whether to contract out can be useful as a first step in systematically formulating the government's decision for a variety of goods/services. This provides an alterative to the identification of key decision properties “from the ground up” for each good or service the government provides.