Principals, Agents, and Distant Markets: The Role of Information in Non-State Market-Driven Public Policy

Abstract

Although non-state market-driven (NSMD) policies are increasingly promoted as more efficient and effective alternatives to state-based regulation, there have been few comparative studies of the two approaches, and none that focus on their relative reliability as a means of policy delivery. To facilitate comparison of state and non-state policy systems, I develop a two-part comparative framework that highlights key structural features expected to produce slippage (i.e., a divergence of principals' expectations and agents' actions). The first integrates new insights about principal-agent theory with formal network analysis, emphasizing internal structural factors that can be expected to impact communication between policymakers those to whom they delegate implementation responsibilities (i.e., structural complexity). The second focuses on exogenous factors; namely the tendency for communication errors to increase as people are separated by culture and experience (i.e., social distance). I apply this framework to compare state forest laws and two NSMD systems currently operating in Chile. Since NSMD authority - and persistence as market alternatives - are predicated on informed demand, I analyze media content throughout the global products chain, controlling for geography, culture, and epistemic community. I conclude that an important NSMD instrument (the chain-of-custody) weakens the reliability of such models as means of implementing public policy. Moreover, since the quality of communication about NSMD systems strongly declines with geographical distance, this suggests we may be replacing governmental systems of safeguarding public goods (however flawed) with alternatives that are likely to be less effective in the long run.