It is shown how the instruments of incentive theory can be used to develop some views about the proper design of governments to avoid the capture of politicians and bureaucrats by interest groups. First, treating politicians as informed supervisors to whom economic policy is delegated, the usefulness of the separation of powers to increase the transaction costs of collusion is shown. The tradeoffs between greater efficiency obtained by allowing powerful instrument to politicians and less discretion by restricting on the contrary those instruments are examined. Finally, it is shown that the new theory of incentives for group behavior can be used to determine the transaction costs of collusion under asymmetric information and to which extent these costs relax the constraints imposed on government by collusive behavior.
