IDEAS home Printed from https://ideas.repec.org/p/cep/stieop/048.html
   My bibliography  Save this paper

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

Author

Listed:
  • Rafael Hortala-Vallve
  • Valentino Larcinese
  • Stephanie Rickard

Abstract

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.

Suggested Citation

  • Rafael Hortala-Vallve & Valentino Larcinese & Stephanie Rickard, 2013. "The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information," STICERD - Economic Organisation and Public Policy Discussion Papers Series 048, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stieop:048
    as

    Download full text from publisher

    File URL: http://sticerd.lse.ac.uk/dps/eopp/eopp48.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Follesdal, Andreas & Hix, Simon, 2005. "Why There is a Democratic Deficit in the EU: A Response to Majone and Moravcsik," European Governance Papers (EUROGOV) 2, CONNEX and EUROGOV networks.
    2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    3. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-1430, November.
    4. John Ledyard, 1984. "The pure theory of large two-candidate elections," Public Choice, Springer, vol. 44(1), pages 7-41, January.
    5. Garuda, Gopal, 2000. "The Distributional Effects of IMF Programs: A Cross-Country Analysis," World Development, Elsevier, vol. 28(6), pages 1031-1051, June.
    6. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
    7. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
    8. Richard McKelvey & Peter Ordeshook, 1984. "Rational expectations in elections: some experimental results based on a multidimensional model," Public Choice, Springer, vol. 44(1), pages 61-102, January.
    9. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    10. Nooruddin, Irfan & Simmons, Joel W., 2006. "The Politics of Hard Choices: IMF Programs and Government Spending," International Organization, Cambridge University Press, vol. 60(04), pages 1001-1033, October.
    11. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    12. Mahdavi, Saeid, 2004. "Shifts in the Composition of Government Spending in Response to External Debt Burden," World Development, Elsevier, vol. 32(7), pages 1139-1157, July.
    13. Rafael Hortala-Vallve & Berta Esteve-Volart, 2011. "Voter turnout in a multidimensional policy space," Economics of Governance, Springer, vol. 12(1), pages 25-49, March.
    14. Hortala-Vallve, Rafael & Esteve-Volart, Berta, 2011. "Voter turnout and electoral competition in a multidimensional policy space," European Journal of Political Economy, Elsevier, vol. 27(2), pages 376-384, June.
    15. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    17. Lindert, Peter H., 1996. "What Limits Social Spending?," Explorations in Economic History, Elsevier, vol. 33(1), pages 1-34, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Prato, Carlo & Wolton, Stephane, 2014. "Electoral Imbalances and their Consequences," MPRA Paper 68650, University Library of Munich, Germany, revised 26 Nov 2015.
    2. Prato, Carlo & Wolton, Stephane, 2014. "The Voters' Curses: The Upsides and Downsides of Political Engagement," MPRA Paper 53482, University Library of Munich, Germany.
    3. Prato, Carlo & Wolton, Stephane, 2013. "Rational Ignorance, Elections, and Reform," MPRA Paper 68638, University Library of Munich, Germany, revised 10 Dec 2015.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:stieop:048. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://sticerd.lse.ac.uk/_new/publications/default.asp .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.