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Credible communication in dynastic government

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  • Lagunoff, Roger

Abstract

This paper examines the mechanics of intertemporal information provision in 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, e_ective deterrents even in the "good" periods (when the auditor's and the regime's biases di_er) are di_cult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for e_cient policy choices. The main result shows that these constraints typically bind away from optimal policies in standard constructions of equilibrium.
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  • Lagunoff, Roger, 2006. "Credible communication in dynastic government," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 59-86, January.
  • Handle: RePEc:eee:pubeco:v:90:y:2006:i:1-2:p:59-86
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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. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2012. "Communication and Learning," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 419-450.
    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, 2007. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Levine's Bibliography 122247000000000876, 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. Lagunoff, Roger, 2009. "Dynamic stability and reform of political institutions," Games and Economic Behavior, Elsevier, vol. 67(2), pages 569-583, November.
    7. 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.
    8. Roger Lagunoff, 2006. "Dynamic Stability and Reform of Political Institutions," Levine's Bibliography 784828000000000051, UCLA Department of Economics.
    9. Georgy Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Politics of Succession," Game Theory and Information 0505003, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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