Delegation theory

One of the most important areas where delegation theories have been applied has been in the debate over the merits of Independent Central Banks (ICBs) such as the Bank of England or the European Central Bank. This debate has corresponded to the theories of credible commitments and can be understood as a solution to problems posed by the two democratic pressure problems mentioned above where monetary policy is concerned. Those in favour of the creation of ICBs have primarily focused on interest rates and have argued that democratic pressures tend to have an inflationary effect as governments will often be tempted to advocate lower interest rates immediately prior to an election so as to manufacture short term booms in the economy and boost their support - but to the detriment of long term economic health. A variant of this argument is that as most democracies incorporate two main parties split on economic policy between left and right, the party of the left winning power will often result in damaging inflation raising policies immediately after the election in an effort to distance itself from the previous government. A solution to these problems has naturally been sought in the creation of an independent institution which can decide interest rates outside of the influence of democratic pressures - the ICB.

This argument has been highly influential and the number of ICBs has risen dramatically since the 1980s however it is not without its critics. Many scholars (for instance Kathleen Mcnamara) have questioned the premises of the ICB argument, making the case that democratic pressures will not result in high inflation and that high inflation is not inherently bad for the economy long term. Broadly speaking the empirical evidence on these points has tended to be inconclusive for both sides. An alternative criticism has come from certain branches of new institutionalism who have sought to explain the increase in ICBs not by the 'rational' argument outlined above, but as a process of symbolism, where governments will create ICBs because they are seen to be respectable institutions by other actors, particularly by foreign investors who, it is argued, will view a country with an ICB as a modern state worthy of investment.

Delegation theories have also been applied extensively in studies of the European Union. The dominant approach has undoubtedly been the principal-agent approach, but there have also been variations from the classic form by intergovernmentalist approaches and the fiduciary model laid out by Giandomenico Majone.

Andrew Moravcsik is perhaps the most prominent intergovernmentalist theorist who has written on delegation and his work can essentially be thought of as applying the principal-agent model in a manner which stresses minimal agency loss. The model is not a simple principal-agent model however, as he conceives of the EU as delegation on three levels. Firstly there is the delegation from European electorates to national governments (who in this sense act as agents), secondly there is the delegation from national governments (who now act as principals) to European institutions such as the European Commission. Moravcsik has been particularly interested in the informational asymmetries which arise from delegation in the European Union and has argued that whilst there is minimal agency loss between the national governments and the European institutions, the national governments gain significant informational advantages over European electorates which allow them to carry out policies at home which they would not be able to do in the absence of the European Union. In this sense the delegation process strengthens the national governments rather than weakening them (as is traditionally assumed where the European Union is concerned). This has nevertheless been seen as inconsistent by some scholars (for instance Mark Pollack) who take issue with the assertion that informational advantages only allow national governments to gain freedom from European electorates and that the same principle applies with European institutions gaining an advantage over their principals through informational asymmetries.

In contrast Giandomenico Majone has formulated a theory of delegation which stresses the importance of credibility problems in the decision to delegate to European institutions. Not only is this explained as a mechanism to ensure member states comply with treaty obligations, but employing similar logic as that used in the ICB debates he makes a defence against democratic deficit arguments which advocate a directly elected European Commission. Much in the same way as in the ICB debate democratic pressures are seen as impacting negatively on what is a primarily regulatory institution and as such for Majone the Commission should be insulated from democratic pressures if it is to fulfill its functions effectively.