Policy makers, advisers, and reputation

When hiring an adviser (he), a policy maker (she) has incomplete information about his preferences. Some advisers are good (their preferences are closely aligned to the policy maker’s), and some advisers are bad. Recently, some scholars have argued that the policy maker’s power to replace her adviser induces him to act more in line with her interests, so the adviser’s desire to influence future policy reduces his incentive to manipulate information. We show that the policy maker’s power to replace her adviser may harm her because this power may have an adverse effect on the behavior of good advisers.