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Credible Communication in Dynastic Government

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  • Roger Lagunoff

    (Georgetown University)

Abstract

This paper examines the mechanics of intertemporal information provision in {\em 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, effective deterrents even in the ``good" periods (when the auditor's and the regime's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient 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 EconWPA in its series Game Theory and Information with number 0203003.

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Length: 28 pages
Date of creation: 07 Mar 2002
Date of revision:
Handle: RePEc:wpa:wuwpga:0203003

Note: Type of Document - LaTex; prepared on PC ; to print on Best on Postscript ; pages: 28; figures: included
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Web page: http://128.118.178.162

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

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Citations

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Cited by:
  1. Roger Lagunoff, 2004. "The Dynamic Reform of Political Institutions," Econometric Society 2004 Latin American Meetings 47, Econometric Society.
  2. Roger Lagunoff (Georgetown University), 2005. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Working Papers gueconwpa~05-05-07, Georgetown University, Department of Economics.
  3. Egorov, Georgy & Sonin, Konstantin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," CEPR Discussion Papers 5092, C.E.P.R. Discussion Papers.
  4. Roger Lagunoff, 2006. "Dynamic Stability and Reform of Political Institutions," Levine's Bibliography 784828000000000051, UCLA Department of Economics.
  5. Heyes, Anthony & Kapur, Sandeep, 2012. "Community pressure for green behavior," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 427-441.
  6. Georgy Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Politics of Succession," Game Theory and Information 0505003, EconWPA.
  7. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2008. "Communication and Learning," Cowles Foundation Discussion Papers 1639, Cowles Foundation for Research in Economics, Yale University.

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