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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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.3.1261
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 3 (June)
Pages: 1261-68

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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
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  1. : Christian Schultz, . "Polarization and Inefficient Policies," Discussion Papers 93-16, University of Copenhagen. Department of Economics.
  2. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  3. Mariano Tommasi, 1995. "Why Does it Take a Nixon to go to China?," UCLA Economics Working Papers 728, UCLA Department of Economics.
  4. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
  5. Wilko Letterie & Otto H. Swank, 1998. "Economic Policy, Model Uncertainty and Elections," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 85-103, 03.
  6. 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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