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Unintended Consequences: Ambiguity Neglect and Policy Ineffectiveness

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  • Lorán Chollete

    (Welch College of Business and Technology)

  • Sharon G. Harrison

    (Barnard College)

Abstract

When a policymaker introduces a novel policy, she will not know what citizens’ choices will be under the policy, and citizens themselves may have to construct new choice sets. This imparts inherent ambiguity to novel policy implementation: The policymaker does not know the probability that citizens will select actions that align with her policy. Assuming that citizens will follow a fixed approach may expose the policymaker to ambiguity neglect, which can result in unintended consequences. We provide examples and a simple formalization. Our results suggest that before implementing novel policies, policymakers should attempt to elicit preferences from citizens.

Suggested Citation

  • Lorán Chollete & Sharon G. Harrison, 2021. "Unintended Consequences: Ambiguity Neglect and Policy Ineffectiveness," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(2), pages 206-226, April.
    • Handle: RePEc:pal:easeco:v:47:y:2021:i:2:d:10.1057_s41302-021-00187-7
    DOI: 10.1057/s41302-021-00187-7
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    More about this item

    Keywords

    Ambiguity neglect; Choice construction; Externalities; Policy ineffectiveness; Unintended consequences;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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