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Rush, delay or money burning: Informational biases in policy decisions

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  • Hans Gersbach

Abstract

We examine the consequences when the public is unsure about the ability of governments to foresee the effects of decisions. Governments with much information should invest either immediately or never. Governments that are not well informed should wait for better information. But since governments want to signal their abilities to solve problems, we observe rash decisions and problems are portrayed as crises. We also show that excessive delay can occur. Delay or rush occur even if there is very little uncertainty about abilities of governments. We discuss three institutional rules to alleviate the rush and delay bias: Limiting expenditures before elections, experimental clauses or money burning. Copyright Springer-Verlag Berlin Heidelberg 2000

Suggested Citation

  • Hans Gersbach, 2000. "Rush, delay or money burning: Informational biases in policy decisions," Economics of Governance, Springer, vol. 1(2), pages 137-155, July.
    • Handle: RePEc:spr:ecogov:v:1:y:2000:i:2:p:137-155
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    More about this item

    Keywords

    Key words: rush; delay; competence; option values; money burning refinement; signalling.; JEL classification: D72; D82; H50;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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