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Policy Gambles

Author

Listed:
  • Sumon Majumdar
  • Sharun W. Mukand

Abstract

This paper develops a theory of policy making, that examines the incentives for experimentation with new policies and the scrappage of adopted policies. We demonstrate that a government which cares about its reputation out of electoral concerns, takes socially ine?cient policy gambles that may result in two kinds of ine?ciencies ? Þrst, a government may ine?ciently experiment by undertaking a new policy initiative that it (and the voter) knows is unlikely to succeed, and second, the government may prefer to not learn from experience and instead persist with an adopted policy despite publicly observable evidence of its failure. Furthermore, these ine?ciencies are systematically related to the electoral cycle. Early on in its term a government is likely to enact policies that are either too conservative or too radical, while later on in its term the government is likely to show ine?cient policy persistence.
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Suggested Citation

  • Sumon Majumdar & Sharun W. Mukand, 2004. "Policy Gambles," American Economic Review, American Economic Association, vol. 94(4), pages 1207-1222, September.
    • Handle: RePEc:aea:aecrev:v:94:y:2004:i:4:p:1207-1222
    DOI: 10.1257/0002828042002624
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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
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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