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On Misunderstanding Government: an Analysis of the Art of Policy Advice


  • K. Basu


In the traditional economics literature government is treated as an agent exogenous to the economy. When economists confront situations where individuals cannot sign binding contracts, they invoke government as the "third party" that can enforce the contracts; after studying the macroeconomic problems of a country, economists frequently go on to tell what government should do to improve the outcome. It is argued in this paper that this is an erroneous view of government and is the reason why the advice of economists and other social scientists have had so little impact on government behavior. The difficulties of advising an endogenous government are highlighted by developing a new game, the Cheater's Roulette. It demonstrates that even when the adviser and the politician have very similar objectives, there may be no straightforward way to transmit the knowledge of the adviser to the politician. Having analysed the subject of advising government, the paper goes on to discuss, more speculatively, some general issues concerning the modeling of an endogenous government. Copyright 1997 Blackwell Publishers Ltd..

Suggested Citation

  • K. Basu, 1997. "On Misunderstanding Government: an Analysis of the Art of Policy Advice," Economics and Politics, Wiley Blackwell, vol. 9(3), pages 231-250, November.
  • Handle: RePEc:bla:ecopol:v:9:y:1997:i:3:p:231-250

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    Cited by:

    1. Karla Hoff & Joseph E. Stiglitz, 2008. "Exiting a Lawless State," Economic Journal, Royal Economic Society, vol. 118(531), pages 1474-1497, August.
    2. Francesc Trillas Jané, 2016. "Behavioral Regulatory Agencies," Working Papers wpdea1606, Department of Applied Economics at Universitat Autonoma of Barcelona.

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