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The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information

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  • Rafael Hortala-Vallve
  • Valentino Larcinese
  • Stephanie Rickard

Abstract

Institutions can limit governments' policy options. Such restrictions are usually commended as solutions to time inconsistency problems or coordination failures. However, policy constraints can have important drawbacks and these disadvantages have generally been overlooked to date. When institutional constraints tie the governments' hands, citizens have fewer incentives to be informed about politics and participate in collective decision making. In effect, policy restrictions lower the private returns from political information. A fiscal policy restriction, for example, may decrease redistribution by lowering poorer voters' acquisition of political information. We find support for our prediction in a controlled laboratory experiment.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 48.

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Date of creation: Dec 2013
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Handle: RePEc:cep:stieop:48

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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  1. David Str–mberg, 2004. "Mass Media Competition, Political Competition, and Public Policy," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 265-284, 01.
  2. Caraway, Teri L. & Rickard, Stephanie J. & Anner, Mark S., 2012. "International Negotiations and Domestic Politics: The Case of IMF Labor Market Conditionality," International Organization, Cambridge University Press, vol. 66(01), pages 27-61, January.
  3. Valentino Larcinese, 2005. "Does political knowledge increase turnout? Evidence from the 1997 British general election," LSE Research Online Documents on Economics 3614, London School of Economics and Political Science, LSE Library.
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  7. Rafael Hortala-Vallve & Berta Esteve-Volart, 2011. "Voter turnout in a multidimensional policy space," Economics of Governance, Springer, vol. 12(1), pages 25-49, March.
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  13. Lindert, Peter H., 1996. "What Limits Social Spending?," Explorations in Economic History, Elsevier, vol. 33(1), pages 1-34, January.
  14. Larcinese Valentino, 2005. "Electoral Competition and Redistribution with Rationally Informed Voters," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-28, June.
  15. Nooruddin, Irfan & Simmons, Joel W., 2006. "The Politics of Hard Choices: IMF Programs and Government Spending," International Organization, Cambridge University Press, vol. 60(04), pages 1001-1033, October.
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Cited by:
  1. Prato, Carlo & Wolton, Stephane, 2014. "The Voters' Curses: The Upsides and Downsides of Political Engagement," MPRA Paper 53482, University Library of Munich, Germany.

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