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Credible Communication in Dynastic Government

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Abstract

This paper examines the mechanics of intertemporal information provision in dynastic governments. It has been suggested that "horizontal accountability," i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of information. The results here suggest a cautious approach to that view. Government is modelled as a dynastic sequence of regimes. Each regime rules for one period, chooses an expenditure level, then relinquishes power to its successor. When information about past policy choices comes exclusively from the reports of previous regimes, each regime has an incentive to choose its (suboptimal) one shot expenditure policy, and then misrepresent its choice to its successor. I examine the credible communication equilibria taking into account the reporting incentives of an auditor who can independently verify the information each period. In an environment where "liberal" (i.e., those prefering larger government expenditures) and "conservative" (those prefering smaller expenditures) regimes and auditors evolve over time, it is shown that: "conservative" ("liberal") auditors are not credible when the current regime is also "conservative" ("liberal"). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, e_ective deterrents even in the "good" periods (when the auditor's and the regime's biases di_er) are di_cult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for e_cient policy choices. The main result shows that these constraints typically bind away from optimal policies in standard constructions of equilibrium.

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~02-02-04.

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Date of creation: 04 Feb 2002
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Handle: RePEc:geo:guwopa:gueconwpa~02-02-04

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
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Web page: http://econ.georgetown.edu/

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Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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Keywords: dynastic government; dynamic policy bias; auditor neutrality; credible communication.;

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References

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Citations

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Cited by:
  1. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2008. "Communication and Learning," Carlo Alberto Notebooks 82, Collegio Carlo Alberto, revised 2010.
  2. Roger Lagunoff, 2005. "Dynamic Stability and Reform of Political Institutions," Game Theory and Information, EconWPA 0505006, EconWPA.
  3. Roger Lagunoff, 2007. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Levine's Bibliography 122247000000000876, UCLA Department of Economics.
  4. Roger Lagunoff, 2004. "The Dynamic Reform of Political Institutions," Econometric Society 2004 Latin American Meetings, Econometric Society 47, Econometric Society.
  5. Georgy Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Politics of Succession," Game Theory and Information, EconWPA 0505003, EconWPA.
  6. Anthony Heyes & Sandeep Kapur, 2012. "Community Pressure for Green Behaviour," Birkbeck Working Papers in Economics and Finance, Birkbeck, Department of Economics, Mathematics & Statistics 1207, Birkbeck, Department of Economics, Mathematics & Statistics.
  7. George Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," Economics Working Papers 0054, Institute for Advanced Study, School of Social Science.

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