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Political competition, learning and the consequences of heterogeneous beliefs for long-run public projects

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  • Antony Millner
  • H�l�ne Ollivier
  • Leo Simon

Abstract

An incumbent political party, who cares only about voters' welfare, faces future political competition from a similarly well-intentioned party whose beliefs about the consequences of a `long-run' public policy are different from its own. We show that when the incumbent can endogenously influence whether learning occurs (active learning), future political competition gives her an incentive to distort her policy choices so as to reduce uncertainty and disagreement in the future. This incentive pushes all incumbents' policies in the same direction. We demonstrate this mechanism in a two period model of the regulation of a stock pollutant that combines the literature on uncertainty and learning in intertemporal choice with a simple model of political competition. If the interaction between active learning and political competition is strong enough, all incumbents, regardless of their beliefs, will emit more than they would like. Our model thus offers a candidate explanation for the weakness of long-run environmental policy in democracies that applies even in an ideal world in which politicians' objectives are aligned with voters'. The mechanism we identify is likely to apply in many long-run public policy contexts.

Suggested Citation

  • Antony Millner & H�l�ne Ollivier & Leo Simon, 2013. "Political competition, learning and the consequences of heterogeneous beliefs for long-run public projects," GRI Working Papers 104, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp104
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    4. Karp, Larry & Zhang, Jiangfeng, 2006. "Regulation with anticipated learning about environmental damages," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 259-279, May.
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    6. Milesi-Ferretti, Gian Maria & Spolaore, Enrico, 1994. "How cynical can an incumbent be? Strategic policy in a model of government spending," Journal of Public Economics, Elsevier, vol. 55(1), pages 121-140, September.
    7. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
    8. Kelly, David L. & Kolstad, Charles D., 1999. "Bayesian learning, growth, and pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 491-518, February.
    9. Anthony Fisher & Urvashi Narain, 2003. "Global Warming, Endogenous Risk, and Irreversibility," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(4), pages 395-416, August.
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