The whole question of quangos and their use has largely become a political game. This game of musical chairs has involved a barrage of claims and counter claims about the political bias of appointments, the abuses of patronage, and financial irregularities and mismanagement.... The game has directed the debate away from the more fundamental constitutional issues about the role of quangos and their relationships to elected bodies. Tony Stott (1995, 323)
The New Public Management has a paramount implication for the delegation of authority to implement public policy, namely, that such delegations be designed according to the substance of the task to be performed by the government's agent. In other words, the government must be able to choose the best agent to carry out a particular task, which implies that the set of agents must not be confined to actors and departments within the bureaucracy. In this way, the New Public Management seeks to make use of the entire markets-hierarchies continuum of organizations (e.g., Williamson 1973) to achieve better policy outcomes. Quasi-autonomous, nongovernmental organizations, or quangos, are particularly important in the New Public Management for precisely this reason: They are flexible. Whether the relationship between the quango and government is structured contractually, hierarchically, or in some middle-range fashion, there need not be a direct authority link between the legislature, say, through a cabinet minister, and the quango's governance structure. Methods for holding quangos accountable to the government, and ultimately to the public, are also dispersed along a continuum from hierarchical to market discipline (though direct political election of quango officers is extremely rare). On the surface, quangos seem to be the answer to the problem of agency design in the New Public Management era.
Indirect authority increases the importance of the ex ante design of these delegations. As Rae Andre (1985, 46) puts it, "Quangos have been revered for their flexibility and independent judgment in meeting community needs; they have also been excoriated for their misuse of public funds." Ironically, then, the most theoretically attractive feature of quangos--avoiding the hierarchically governed bureau--has the potential to increase ex post checking activity by the government to ensure that good money does not follow bad. Government must still solve a "metering problem" similar to that of the firm, namely, the measurement of policy outcomes and apportionment of rewards (Alchian and Demsetz 1972). Though the literature on quangos is substantial, there is no straightforward theoretical link between outcomes and rewards. I argue that significant analytical traction can be achieved by approaching the quango problem as one of metering.
This study examines the government's ex ante accountability incentives through its design of auditing mechanisms. With such requirements as the requisite submission of annual plans, reports, and accounts--comparable to those mandated for federal agencies in the United States under the Government Performance and Results Act (Radin 1998)--government fashions compliance-inducing schemes for quangos much like those present in tax enforcement (Allingham and Sandmo 1972; Andreoni, Erard, and Feinstein 1998) and in the compliance of lower-court judges with higher-court precedent (Cameron, Segal, and Songer 2000). Consistent with theoretical treatments of the tax and judicial precedent problems, I present a formal model of the government's ex ante auditing choice (the choice of a level of reporting requirements) as a response to expected levels of "cheating" behavior by quangos. As Meier and Bohte (2000) define it in the bureaucratic setting, "organizational cheating" may be defined as revealing incorrect performance information, cutting corners, misusing funds, and so forth. The model also accounts for the influence of the legal status of …