IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/74455.html
   My bibliography  Save this paper

The demand for bad policy when voters underappreciate equilibrium effects

Author

Listed:
  • Dal Bó, Ernesto
  • Dal Bó, Pedro
  • Eyster, Erik

Abstract

Most of the political-economy literature blames inefficient policies on institutions or politicians' motives to supply bad policy, but voters may themselves be partially responsible by demanding bad policy. In this paper, we posit that voters may systematically err when assessing potential changes in policy by underappreciating how new policies lead to new equilibrium behavior. This biases voters towards policy changes that create direct benefits - welfare would rise if behavior were held constant - even if those reforms ultimately reduce welfare because people adjust behavior. Conversely, voters are biased against policies that impose direct costs even if they induce larger indirect benefits. Using a lab experiment, we find that a majority of subjects vote against policies that, while inflicting direct costs, would help them to overcome social dilemmas and thereby increase welfare. Subjects also support policies that, while producing direct benefits, create social dilemmas and ultimately hurt welfare. Both mistakes arise because subjects fail to fully anticipate the equilibrium effects of new policies. More precisely, we establish that subjects systematically underappreciate the extent to which policy changes will affect the behavior of other people, and that these mistaken beliefs exert a causal effect on the demand for bad policy.

Suggested Citation

  • Dal Bó, Ernesto & Dal Bó, Pedro & Eyster, Erik, 2018. "The demand for bad policy when voters underappreciate equilibrium effects," LSE Research Online Documents on Economics 74455, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:74455
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/74455/
    File Function: Open access version.
    Download Restriction: no

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The demand for bad policy when voters underappreciate equilibrium effects
      by maximorossi in NEP-LTV blog on 2019-05-14 14:28:31

    More about this item

    Keywords

    voting; reform; political failure; endogenous policy; experiment;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

    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:ehl:lserod:74455. 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: (LSERO Manager). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    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.

    We have no references for this item. You can help adding them by using 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.