HIERARCHICAL ORGANIZATION AND INCENTIVES

We study decentralization in public decision-making as the possibility for local authorities to sign incentive contracts with local agents i n a context of asymmetric information. We first review some theoretica l arguments put forward for the optimality of decentralized structures . We then present a model of organization of incentive policy in the E U context, where national authorities have better information on their agents but less bargaining power than central authorities at the comm unity level; we show the complementarities between both levels of regu lation.