Complexity and the Reform Process

Decision makers called to evaluate and approve a reform proposed by a politician, a bureaucrat, or an interest group face a double asymmetric information problem: about the competence of the proposer and the consequences of the proposal. Moreover, the ability of decision makers to evaluate proposals depends on the complexity of the legislative environment, itself a product of past reforms. We model the strategic interaction between reformers and decision makers as a function of legislative complexity and study the resulting endogenous complexity and stability of reforms. Reform complexity is non-monotonic in the expected competence of the proposer. Dynamically, complexification-simplification cycles can occur on the equilibrium path. Expected complexity is path dependent when competence of reform proposers is lower, leading to 'complexity traps,' with bad or unnecessary complex reforms, or 'inaction traps,' where reforms are blocked. The results nest and reconcile a number of recent findings in legislative and regulation studies, and provide implications for institutional design.