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The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information

Listed author(s):
  • Rafael Hortala-Vallve
  • Valentino Larcinese
  • Stephanie Rickard

Institutions can limit governments' policy options. Such restrictions are usually commended as solutions to time inconsistency problems or coordination failures. However, policy constraints can have important drawbacks and these disadvantages have generally been overlooked to date. When institutional constraints tie the governments' hands, citizens have fewer incentives to be informed about politics and participate in collective decision making. In effect, policy restrictions lower the private returns from political information. A fiscal policy restriction, for example, may decrease redistribution by lowering poorer voters' acquisition of political information. We find support for our prediction in a controlled laboratory experiment.

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File URL: http://sticerd.lse.ac.uk/dps/eopp/eopp48.pdf
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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 048.

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Date of creation: Dec 2013
Handle: RePEc:cep:stieop:048
Contact details of provider: Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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