Discretionary Authority and Prioritizing in Government Agencies

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This paper applies principal-agent theory to study priority setting by government agencies that have a certain freedom to choose among different possible courses of action. Antitrust authorities are the lead example. It shows how the size of the agency’s discretionary budget influences both the scale and type of tasks it will engage in. This reveals the inner workings of budget as a lever of political control over supposedly independent agencies. Crucial are the head’s concern for her organization’s public image in the media, as well as the agency’s talent pool. The analysis sheds light on such topics as transatlantic differences in approach to Google’s and other digital platforms’ market dominance, State aid tax deals, and optimal institutional merger design. In relation to the objective of budgetary autonomy in the European Commission’s ECN+ initiative and Directive 2019/1, the study shows that the transmission from budget to priorities is subtle, also in well-resourced agencies. By edging the discretionary part of the agency’s budget over certain threshold values, a government can qualitatively affect the agency’s task pickup to its liking.