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Policy Making with Reputation Concerns

  • FU, Qiang
  • LI, Ming

We study the policy choice of an incumbent politician who is concerned with the public's perception of his capability. The politician decides whether to maintain the status quo or to conduct a risky reform. The success of the reform critically depends on the ability of the politician in oce, which is privately known to the politician. The public observes both his policy choice and the outcome of the reform, and forms a posterior on the true ability of the politician. We show that politicians may engage in socially detrimental reform in order to be perceived as more capable. Conservative institutions that thwart reform may potentially improve social welfare.

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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 09-2010.

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Length: 34 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mtl:montec:09-2010
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