In all the fuss about Maria Miller's resignation, a simple point has been ignored - that the issue here is a mainstream economic one. It's the principal-agent problem. How can principals (voters) ensure that their agents (MPs) behave in ways they want (keeping their hands out the till)?
Broadly speaking, there are three ways to achieve this.
One is simply to hire better people. However, given that most people would vote for a dead pig if it wore the right coloured rosette, this requires radical change.
A second possibility is to exercise greater direct oversight. In the Miller context, this requires simpler and tighter control of expenses. But as Ben Worthy says, we are a long way from this.
This leaves a third possibility - to give them greater incentives. One obvious possibility here is to use efficiency wages - that is, to pay MPs so much that the threat of losing their job will hurt more. This will incentivize them to be honest. As Mark Thompson tweeted: "The longer we will not countenance a pay rise for MPs the more gaming the system will tempt them." And from a different political perspective Jackart said: "The expenses scandal happened because we are too cheap and chippy to pay MPs properly, so we get the worthless fucks we deserve."
Now, efficiency wages are a big and important idea. One reason why the relative pay of low-skilled workers has fallen since the 80s is that managers have imposed direct oversight upon workers, thus reducing the need to pay an efficiency wage. And bankers and bosses are paid so much not because they are especially talented but because where direct oversight is impossible, they must be incentivized not to sell off the firms' assets cheaply.
So, should we pay MPs efficiency wages? I'm not sure. For one thing, efficiency wages are only an incentive if you lose your job when your caught fiddling; for this reason they might have to be combined with powers to recall MPs. And for another, there's a danger of incentive crowding out. If we pay MPs more, we might attract folk who are motivated only by money to the detriment of those motivated by public service; if you think MPs are only in it for themsleves now, it could be worse if they are better paid.
However, I doubt if these are the real reasons why the public would be opposed to Mark and Jackart's thinking. I suspect instead that the opposition to efficiency wages rests upon their counter-intuitiveness, in two ways:
- Efficiency wages break the link between productivity and pay. Their very point is that they entail paying people more than their marginal product. This conflicts with the intuition that people should be paid according to their skills.
- Efficiency wages are unjust. We are, in effect, bribing people to be honest - which is, in a sense, a reward for dishonesty.
My point here is a simple but depressing one. If we are serious in wanting to avoid another Miller "scandal", we need to think about how to apply agency theory to MPs. And this might entail some tricky trade-offs. Such thinking is, though, scarce. MPs want to pretend that they are basically honest people of good judgement, and voters are content with the occasional scandal because it gives them a chance to engage in bouts of narcissistic self-righteous moralizing. As for actuallly solving the problem, well, who cares?