April  4, 2000

POSTSCRIPT TO:  A THEORY OF TRUSTEES, AND OTHER THOUGHTS

"A Theory of Trustees, and Other Thoughts," in Public Debt and its Finance in a Model of a
Macroeconomic Policy Game: Papers Presented at a Workshop held in Antalya, Turkey on
October 10-11, 1997. , ed. by Tahire Akder.  

     To the other four P's, I must add a fifth, Principle. This is not quite the same as Policy, the P to which it 
is closest.  By  "Principle"  I mean a desire to take  a stand, regardless of whether taking a stand helps to 
achieve the desired end or not.   Suppose, for example, that a politician desires a 30 percent tax cut.  He 
could satisfy Principle, by holding out for 30 percent, knowing that the result will be no tax cut at all, or 
satisfy Policy, by compromising on a  10 percent tax cut. These are distinct goals.  In modelling terms, the 
Trustee obtains a Principle payoff from taking  a particular action; he obtains a Policy payoff from a 
particular event happening,  whether or not it happens because of his action.   The Policy goal is advanced, 
of course, by the Trustee's actions, but  he will be just as happy if the event happens without his 
intervention.

    Principle is very important for  judges.  A judge who tries to interpret the law according to original intent 
or plain meaning is motivated by Principle, and will often obtain Policies that he dislikes. Other judges are 
motivated by Policy, and  their decisions are  "result-oriented", independent of the laws they are supposedly 
interpreting.

      Central banking has less opportunity for divergence between Policy and Principle, but it still can arise. 
A central banker, might, for example, find that he could achieve more stable economic growth by doing 
favors for elected officials.  This would go against Principle, but  aid Policy.    Corporate officers and literal  
trustees of charitable or other trusts could find themselves having to make similar tradeoffs with respe ct to  
bribes that would help their beneficiaries.

      
Eric Rasmusen
Professor  of Business Economics and Public Policy,
Kelley  School of Business, Indiana University,
  1309 East 10th Street, Bloomington, Indiana 47405-1701.   Erasmuse@Indiana.edu.   
Http://Php.indiana.edu/~erasmuse.
(812)855-9219.  Direct: 812-855-3356.  Fax: (812)855-3354.