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Abstract

The relationship between legislatures and bureaucracies is typically modeled as a principal–agent game. Legislators can acquire information about the (non-)compliance of bureaucrats at some specific cost. Previous studies consider the information from oversight to be perfect, which contradicts most real-world applications. We therefore provide a model that includes random noise as part of the information. The quality of provided goods usually increases with information accuracy while simultaneously requiring less oversight. However, bureaucrats never provide high quality if information accuracy is below a specific threshold. We assess the empirical validity of our predictions in a lab experiment. Our data show that information accuracy is indeed an important determinant of both legislator and bureaucrat decision-making.