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Policy Reversal


  • Espen R. Moen
  • Christian Riis


We analyze the existence of policy reversal, the phenomenon sometimes observed that a certain policy (say extreme left-wing) is implemented by the "unlikely" (right-wing) party. We formulate a Downsian signaling model where the incumbent government, through its choice of policy, reveals information both regarding own preferences and external circumstances that may call for a particular policy. We show that policy reversal may indeed exist as an equilibrium phenomenon. This is partly because the incumbent party has superior opportunities to reveal information, and partly because its reputation protects a left-wing incumbent when advertising a right-wing policy.

Suggested Citation

  • Espen R. Moen & Christian Riis, 2010. "Policy Reversal," American Economic Review, American Economic Association, vol. 100(3), pages 1261-1268, June.
  • Handle: RePEc:aea:aecrev:v:100:y:2010:i:3:p:1261-68 Note: DOI: 10.1257/aer.100.3.1261

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    References listed on IDEAS

    1. Christian Schultz, 1996. "Polarization and Inefficient Policies," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 331-344.
    2. Wilko Letterie & Otto H. Swank, 1998. "Economic Policy, Model Uncertainty and Elections," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 85-103, March.
    3. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    4. Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March.
    5. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-197, March.
    6. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
    7. repec:cup:apsrev:v:88:y:1994:i:02:p:327-335_09 is not listed on IDEAS
    8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design


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