Discretionary Authority and Prioritizing in Government Agencies

Government agencies have a certain freedom to choose among different possible courses of action. This paper studies agency decision-making on priorities in a principal-agent framework with multi-tasking. Agency leadership has discretion over part of the agency's budget to incentivize staff in the pickup of cases. The head is concerned with society's benefits from the agency's overall performance, but also with the organization's public image. Based on their talent and the contracts offered by the head, staff officials choose which type of task to pursue: complex major cases with an uncertain outcome, or basic minor and simple cases with a much higher probability of success. We show how the size of the agency's discretionary budget influences both the scale and type of tasks it will engage in. Small changes in the budget can cause extensive restructuring from major to minor tasks, or vice versa, causing social welfare jumps. Agency behavior depends on the head's inclination, on which government may have imperfect information. Antitrust authorities serve as one illustration of implications for institutional design