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Abstract

Should government be allowed to spend tax payers' money on public relations? If one frames the question that way, the negative answer suggests itself. Yet government communication serves more purposes. These purposes may be analysed in terms of behavioural economics and psychology. In moral suasion, government communication is the governance tool itself. Most other governance tools do not automatically reach their addressees. Appropriate communication is necessary for them to become effective. Finally, government is a legitimate player in political process, and communication to the public is a legitimate element of this process. Specifically, the normatively desirable and the normative problematic aspects can usually not be fully disentangled. Hence, the potential distortion of elections must be outweighed against the governance effect. This paper does so by interpreting governmental public relations as a bundled product. It models the people as the principal, and the political parties running government as the agent. The distortion effect is observable, the governance effect is not. This set-up of the model invites a second-best solution in terms of mechanism design. Government is free to advertise. But advertising is costly in that it generates a handicap at the next elections. This solution is taken as a benchmark for discussing politically more digestible third and forth best alternatives.