We study a credit model where, because of adverse selection, unprofitable projects may nevertheless be financed. Indeed they may continue to be financed even when shown to be lowquality if sunk costs have already been incurred. We show that credit decentralization offers a way for creditors to commit not to refinance such projects, thereby discouraging entrepreneurs from undertaking them initially. Thus, decentralization provides financial discipline. Nevertheless, we argue that it puts too high a premium on short-term returns. The model seems pertinent to two issues: "soft budget constraint" problems in centralized economies, and differences between "Anglo-Saxon" and "German-Japanese" financing practices.

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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to Journal of Political Economy.The paper's main contribution is to provide a rationale for advocacy. After observing that many organizations (corporations, judiciary, and the executive and legislative branches of government) use competition among enfranchised advocates of special interests to improve policy making, it argues that advocacy has two major benefits. First, the advocates' rewards closely track their performance whereas nonpartisans' incentives are impaired by their pursuing several conflicting causes at one time. Second, advocacy enhances the integrity of decision making by creating strong incentives to appeal in case of an abusive decision. The paper also analyzes the costs of advocacy in terms of manipulation and garbling of information. It further shows that it may be costly for both the organization and interested parties themselves to let these parWe thank Philippe Aghion,