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Policy Gambles

  • Sumon Majumdar
  • Sharun W. Mukand

This paper develops a theory of policy making, that examines the incentives for experimentation with new policies and the scrappage of adopted policies. We demonstrate that a government which cares about its reputation out of electoral concerns, takes socially ine?cient policy gambles that may result in two kinds of ine?ciencies ? Þrst, a government may ine?ciently experiment by undertaking a new policy initiative that it (and the voter) knows is unlikely to succeed, and second, the government may prefer to not learn from experience and instead persist with an adopted policy despite publicly observable evidence of its failure. Furthermore, these ine?ciencies are systematically related to the electoral cycle. Early on in its term a government is likely to enact policies that are either too conservative or too radical, while later on in its term the government is likely to show ine?cient policy persistence.

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File URL: http://ase.tufts.edu/econ/papers/200407.pdf
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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0407.

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Date of creation: 2004
Date of revision:
Handle: RePEc:tuf:tuftec:0407
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  1. Tommasi, Mariano & Velasco, Andres, 1995. "Where are we in the Political Economy of Reform?," Working Papers 95-20, C.V. Starr Center for Applied Economics, New York University.
  2. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
  3. Eric Maskin, 2003. "The Politician and the Judge: Accountability in Government," Theory workshop papers 505798000000000076, UCLA Department of Economics.
  4. Bénabou, Roland & Tirole, Jean, 2005. "Belief in a Just World and Redistributive Politics," CEPR Discussion Papers 4952, C.E.P.R. Discussion Papers.
  5. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  6. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-97, March.
  7. Stephen Coate & Stephen Morris, . "Policy Persistence," Penn CARESS Working Papers 8a66677895e9fcb3f6d813c0c, Penn Economics Department.
  8. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
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