The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy

Governments unable to make credible promises hinder economic development and effective policymaking. Scholars have focused considerable attention on checks and balances and the delegation of authority to independent agencies as institutional solutions to this problem. The political conditions under which these institutions enhance credibility, rather than policy stability, are still unclear, however. We show that checks—multiple veto players—enhance credibility, depending on the extent of uncertainty about the location of the status quo, on how agenda control is allocated among the veto players, and on whether veto players have delegated policymaking authority to independent agencies. In the context of…