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Are we Better Off if our Politicians Have More Information?

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  • Lagerlöf, Johan N.M.

Abstract

This Paper studies a model of public policy with heterogeneous citizens/voters and two public goods: one (roads) is chosen directly by an elected policy-maker, and the other (pollution) depends stochastically on the amount of roads. Both a one-country and a two-country version of the model are analysed, the latter displaying externalities across the countries, which creates incentives for free-riding and strategic delegation. The welfare effects of providing the policy-maker with information about the relationship between roads and pollution are investigated, and it is shown that more information hurts some – sometimes even all – citizens. In particular, the opportunity not to build an institution for information gathering can serve as a commitment device for a country, although with the unfortunate effect of making the overall outcome even worse. Implications for the welfare effects of ‘informational lobbying’ are discussed.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3884.

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Date of creation: May 2003
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Handle: RePEc:cpr:ceprdp:3884

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Keywords: informational lobbying; interest groups; public information acquisition; strategic delegation; value of information; welfare;

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References

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  1. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Sakai, Yasuhiro, 1985. "The value of information in a simple duopoly model," Journal of Economic Theory, Elsevier, vol. 36(1), pages 36-54, June.
  3. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
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  5. Reed, W Robert, 1989. "Information in Political Markets: A Little Knowledge Can Be a Dangerous Thing," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(2), pages 355-74, Fall.
  6. Johan Lagerlöf, 1999. "Costly Information Acquisition and Delegation to a "Liberal" Central Banker," CIG Working Papers FS IV 99-18, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  7. Persson, Torsten & Tabellini, Guido, 1991. "The Politics of 1992: Fiscal Policy and European Integration," CEPR Discussion Papers 501, C.E.P.R. Discussion Papers.
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  9. Potters, J.J.M. & Winden, F. van, 1992. "Lobbying and asymmetric information," Open Access publications from Tilburg University urn:nbn:nl:ui:12-223989, Tilburg University.
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  11. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
  12. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
  13. Putnam, Robert D., 1988. "Diplomacy and domestic politics: the logic of two-level games," International Organization, Cambridge University Press, vol. 42(03), pages 427-460, June.
  14. Gersbach, Hans, 1991. "The value of public information in majority decisions," Economics Letters, Elsevier, vol. 35(3), pages 239-242, March.
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  16. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
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Cited by:
  1. Catherine C. Eckel & Ragan Petrie, 2011. "Face Value," American Economic Review, American Economic Association, vol. 101(4), pages 1497-1513, June.

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