Learning, voting and the information trap
We consider a median voter model with uncertainty about how the economy functions. The distribution of income is exogenously given and the provision of a public good is financed through a proportional tax. Voters and politicians do not know the true production function for the public good, but by using Bayes rule they can learn from experience. We show that the economy may converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap.
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1064, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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NajEcon Working Paper Reviews
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99-09, Massachusetts Institute of Technology (MIT), Department of Economics.
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94-15, Massachusetts Institute of Technology (MIT), Department of Economics.
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