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Policy Gambles

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  • Sumon Majumdar
  • Sharun W. Mukand

Abstract

This paper develops a theory of policy making, that examines the incentives for experimentation with new policies and the scrappage of adopted policies. We demonstrate that a government which cares about its reputation out of electoral concerns, takes socially ine?cient policy gambles that may result in two kinds of ine?ciencies ? Þrst, a government may ine?ciently experiment by undertaking a new policy initiative that it (and the voter) knows is unlikely to succeed, and second, the government may prefer to not learn from experience and instead persist with an adopted policy despite publicly observable evidence of its failure. Furthermore, these ine?ciencies are systematically related to the electoral cycle. Early on in its term a government is likely to enact policies that are either too conservative or too radical, while later on in its term the government is likely to show ine?cient policy persistence.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 4 (September)
Pages: 1207-1222

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:4:p:1207-1222

Note: DOI: 10.1257/0002828042002624
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References

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  1. Benabou, Roland & Tirole, Jean, 2004. "Belief in a Just World and Redistributive Politics," Papers 08-15-2005a, Princeton University, Research Program in Political Economy.
  2. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-97, March.
  3. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  4. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," Economics Working Papers 0020, Institute for Advanced Study, School of Social Science.
  5. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
  6. Mariano Tommasi & Andres Velasco, 1996. "Where are we in the political economy of reform?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 187-238.
  7. Stephen Coate & Stephen Morris, . "Policy Persistence," Penn CARESS Working Papers 8a66677895e9fcb3f6d813c0c, Penn Economics Department.
  8. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
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Citations

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Cited by:
  1. Eliasson , Jonas & Proost, Stef, 2014. "Is sustainable transport policy sustainable?," Working papers in Transport Economics 2014:2, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  2. Fu, Qiang & Li, Ming, 2014. "Reputation-concerned policy makers and institutional status quo bias," Journal of Public Economics, Elsevier, vol. 110(C), pages 15-25.
  3. Klaas J. Beniers & Robert Dur, 2004. "Politicians' Motivation, Political Culture, and Electoral Competition," Tinbergen Institute Discussion Papers 04-065/1, Tinbergen Institute, revised 16 Aug 2005.
  4. Liu, Yaozhou Franklin & Sanyal, Amal, 2012. "When second opinions hurt: A model of expert advice under career concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 1-16.
  5. FU, Qiang & LI, Ming, 2010. "Policy Making with Reputation Concerns," Cahiers de recherche 09-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Schuett, Florian & Wagner, Alexander K., 2011. "Hindsight-biased evaluation of political decision makers," Journal of Public Economics, Elsevier, vol. 95(11), pages 1621-1634.
  7. Honryo, Takakazu, 2013. "Signaling Competence in Elections," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 442, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Sharun Mukand, 1999. "Globalization and the "Confidence Game"," Discussion Papers Series, Department of Economics, Tufts University 9924, Department of Economics, Tufts University.
  9. Di Maggio, Marco, 2009. "Accountability and Cheap Talk," MPRA Paper 18652, University Library of Munich, Germany.
  10. Binswanger, J. & Oechslin, M., 2014. "Disagreement and Learning About Reforms," Discussion Paper 2014-020, Tilburg University, Center for Economic Research.
  11. Arghya Ghosh & Kieron Meagher, 2011. "The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty," ANU Working Papers in Economics and Econometrics 2011-556, Australian National University, College of Business and Economics, School of Economics.
  12. Justin Fox, 2007. "Government transparency and policymaking," Public Choice, Springer, vol. 131(1), pages 23-44, April.
  13. Tim Willems, 2013. "Political Accountability and Policy Experimentation: Why to Elect Left-Handed Politicians?," Economics Series Working Papers 647, University of Oxford, Department of Economics.
  14. repec:dgr:uvatin:2005080 is not listed on IDEAS
  15. Klaas J. Beniers, 2005. "Party Governance and the Selection of Parliamentarians," Tinbergen Institute Discussion Papers 05-080/1, Tinbergen Institute.
  16. Amihai Glazer, 2012. "Handicaps on Timing to Improve Reputation," Working Papers 111210, University of California-Irvine, Department of Economics.

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