Rational Ignorance, Elections, and Reform

This paper studies how voters' demand for reform affects the probability that economic reforms are adopted and, conditional on being adopted, their quality. We consider a model of electoral competition with rationally inattentive voters in which the success of policy changes is tied to a politician's unobservable competence. We show that when the demand for reform is high, the electoral process becomes over-responsive: Candidates promise reforms despite their inability to carry-out welfare-improving policy changes. As voters must then choose between potentially harmful reforms or no reform, high demand for reform tends to be associated with lower probability of reform and/or lower quality of reform. We explain how our results help organize the mixed evidence regarding the impact of crises on the likelihood of reform.