The mayor of The Hague insists that a £120,000 "squirrel bridge" built in 2012 to help the cute little critters safely cross a busy motorway was not a waste of money, despite only five squirrels documented in the last four years making the safe crossing.
The Hague's mayor's office argued that it had not been a waste of money, as the cash had not come out of the city's finances. Instead, the money had come from national environmental funding, believed to still be tax funded.
In economics we refer to this as a "principal-agent" problem and it arises when those charged as representatives of others--and in control of their resources--maximize different utility functions from their principals.
Being a well recognized issue in corporate finance, entire contracting theories and governance structures have evolved to reduce the issue. Most methods are really just about aligning incentives, but sadly these advances in minimizing frictions have not really migrated over to politics.
Why might the business world have evolved and political governance remained stagnant? Hint: it may have something to do with the difference between competitive vs. monopolistic systems.
In this case, the mayor's justification for the squirrel bridge not being a waste is that the funds didn't entirely come from local taxpayers. It's easy to see that the principal-agent problem rearing its ugly head here: The mayor has absolutely no incentive to spend non-local taxpayers' money wisely.
It is guaranteed that most people who were forced to contribute to this project derive less utility than had they kept their own money.
What are your thoughts?
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Rob Viglione is a PhD Candidate in Finance @UofSC with research interests in cryptofinance, asset pricing, and innovation. He is a former physicist, mercenary mathematician, and military officer with experience in satellite radar, space launch vehicles, and combat support intelligence. Currently a Principal at Key Force Consulting, LLC, a start-up consulting group in North Carolina, and Head of U.S. & Canada Ambassadors @BlockPay, Rob holds an MBA in Finance & Marketing and the PMP certification. He is a passionate libertarian who advocates peace, freedom, and respect for individual life.
Squirrel image source: http://www.dailymail.co.uk/news/article-3462228/Mayor-insists-120-000-bridge-built-SQUIRRELS-cross-busy-road-Holland-not-waste-money-despite-five-animals-using-four-years.html