Political moral hazard
Özet
This dissertation is composed of three chapters on the subject of moral hazard in the socialand political sphere.The rst chapter explores the eects of asymmetric information on the public control ofpoliticians in a world where the politicians’ pre—election promises are not credible. Politi-cians make decisions that aect social welfare. Some of these decisions are observable by thepublic and some are not. We study a model with identical politicians and a representativevoter whose interests conict with those of the politicians. The voter’s decision to re—electthe politician depends on both her welfare and the observable decisions of the politician.In equilibrium, either socially optimal decisions are not taken by the politician or if taken,the politician would extract more rent in each period. In the latter case, politicians are alsoreplaced more frequently. We show that a reform that would make the political systemmore transparent should be supported by the public and may also be welcomed by thepolitician.The second chapter analyzes the relation between political accountability and the size ofprovinces. We study a model in which the signal to the electorate about the politician’svdecision is noisier in more highly populated provinces. The model implies that both theequilibrium re—election probabilities of politicians and political accountability are lowerin highly populated provinces. This prediction of the model is tested on panel data ofnine municipal elections for 81 provinces of Turkey in the period 1963-2004. We nd thatprovince size is negatively associated with political accountability.In the third chapter, we examine the eects of the introduction of restrictions on the state-ment of preferences in a two—sided matching model with incomplete information. Themodel is similar to the process used for college admissions in Turkey. Colleges have unan-imous preferences — students with higher ranking in the national examinations are alwayspreferred. We show that the introduction of the restrictions on statement of students’preferences can result in unstable matching between colleges and students.