Conventional wisdom holds that open, collaborative, and transparent organizations are innovative. But some of the most radical innovations—satellites, lithium-iodine batteries, the internet—were conceived by small, secretive teams in national security agencies. Are these organizations more innovative because of their secrecy, or in spite of it? We study a principal–agent model of public-sector innovation. We give research teams a secret option and a public option during the initial testing and prototyping phase. Secrecy helps advance high-risk, high-reward projects through the early phase via a cost-passing mechanism. In open institutions, managers will not approve pilot research into high-risk, high-reward ideas for fear of political costs. Researchers exploit secrecy to conduct pilot research at a higher personal cost to generate evidence that their project is viable and win their manager's approval. Contrary to standard principal–agent findings, we show that researchers may exploit secrecy even if their preferences are perfectly aligned with their manager's, and that managers do not monitor researchers even if monitoring is costless and perfect. We illustrate our theory with two cases from the early Cold War: the CIA's attempt to master mind control (MKULTRA) and the origins of the reconnaissance satellite (CORONA). We contribute to the political application of principal–agent theory and studies of national security innovation, emerging technologies, democratic oversight, the Sino–American technology debate, and great power competition.

This article argues that opportunities for unilateral influence within international bureaucracies create a delegation problem akin to that in coalition governments. Parties in coalitions that suspect each another of diverting from the coalition bargain avail themselves of mechanisms, such as junior ministers and parliamentary scrutiny, to monitor their coalition partners’ actions within the executive. Similarly, states that suspect cooperating partners of abusing their unilateral influence within the bureaucracy employ mechanisms, reminiscent of those in coalition governments, in order to ‘keep tabs’ on one another. I illustrate the plausibility of this claim using the case of the European Commission. However, this delegation problem of interstate control can be expected to apply more widely. The article has implications for the study of international organization, international delegation and informal governance.

For decades, political scientists have observed the diffusion of complex governance arrangements including public participation procedures to ameliorate the democratic deficit inherent in these often-opaque structures. This article asks how the information provided in consultation statements is used by the consulting actors. To account for the multi-step character, the article combines exchange theory with a principal-agent approach, acknowledging that several actors in a delegation chain might be interested in the provided information. We use a typical case of a multi-step procedure – participation in German grid development – to test both theories. Neither the private firms nor the regulator use information provided in their own consultations, contradicting exchange theory. But the regulator considers ecological submissions made in the firms’ consultation, as the principal-agent approach suggests. Thus, a principal-agent approach allows us to find influence of consultation statements that exchange theory cannot detect.

The scholarly work on China's environmental regulations in the context of “central–local” relations is dominated by the preference for a centralized approach. This article examines a centrally imposed and executed verification programme of locally reported pollution data, a rare and sustained central effort to enforce an environmental policy, namely the national pollution reduction target system. The programme was established in 2007 to curtail perceived widespread data falsification and to enhance the quality of emission data, the basis for assessing local compliance with targets. Based on an analysis of official documents and interviews with environmental officials and industry representatives, this article found that the verification programme appears to have reduced the overreporting problem with emission data, enhanced local monitoring and enforcement capacity, and to a certain degree deterred violations due to the increased frequency of national and local inspections. Nevertheless, significant challenges remain. Verification is highly resource intensive, it has involved little external oversight and public participation, the central authority has exerted significant yet unchecked discretionary powers, and poor data quality has remained an issue. Over time, the verification programme appears to have turned into essentially a “numbers game.” All those challenges indicate that a centralized enforcement approach is arguably ineffective in addressing China's long-standing problem of weak environmental policy implementation. This study also sheds lights on the classical “principal-agent” theory in the study of public bureaucracy. Not only does the principal distrust the agent, which is the main concern of the theory, but the agent also distrusts the principal.

This paper presents a dynamic principal-agent model of aquatic species invasions in which a manager, concerned about the spread of invasive species across lakes by boaters, sets interseasonal management controls on a lake-by-lake basis, and boaters make a series of intraseasonal trip decisions to maximize random utility during the course of the season, conditional on the controls imposed by the manager. The results of a simulated invasion of Eurasian watermilfoil (Myriophyllum spicatum) highlight interesting aspects of the optimal management policies under two different management objectives: maximizing boater welfare and minimizing milfoil spread.

According to principal-agent theory, states (the principals) delegate the implementation of a legalized agreement to an international organization (the agent). The conventional wisdom about states’ capacity to control international organizations is that differences among the member states impede control and consequently enhance the agent's autonomy, whereas agreement allows for effective control and limited autonomy. Contrary to this conventional wisdom, this article argues that conflicts among states need not always impede effective control. On the contrary: if an international organization comprises a sufficient number of policies, there are gains from the exchange of control over its portfolios that are of special sensitivity to different member states. As a result, international organizations exhibit informal spheres of national control, or national fiefdoms. The article demonstrates the theory's plausibility using the example of the European Union and other international organizations. It has implications for the literature on delegation and informal governance.

Trust allows financial transactions to take place when contracts are incomplete and the cost of negotiating too great for the parties involved. Banking covers many different types of transactions in assets with different levels of incomplete contracts. Investment banks have traditionally dealt with assets with incomplete contracts and often traded on informal and opaque markets. The creation of new global banks combined know-how, capital and collateral to generate enormous growth in these markets. While global banks developed trust with counterparties in specific markets, the opacity combined with limited liability structures also created principal-agent problems. The scandals which emerged are a reflection of these agency problems and have left trust in the banks greatly diminished. If levels of trust remain so low, this will be consistent with ongoing bank vulnerability, less lending to finance risky but profitable investment projects, and consequently lower economic activity. Regulation can support private incentives to accept codes of conduct which enhance trust.

Ample empirical evidence suggests that Rural Credit Cooperatives (RCCs), which are the core credit institutions in rural China, are not accountable to their member households. This article argues that this conundrum can be explained by an institutional analysis of the credit cooperatives using the multiple principals-agent framework: the credit cooperatives as agents are accountable to multiple heterogeneous principals—with multiple conflicting objectives. The multiple principals are (1) the County RCC Unions, which exercise control using the evaluation criteria on which the remuneration of grassroots RCC officers is assessed; (2) local party secretaries, who exert influence through top personnel appointment and dismissal in the credit cooperatives; and (3) member households, which are a “collective” principal. In a multiple-principals scenario, the “collective” principal has weaker control over the agents due to the “collective action” problem.