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Credible Communication in Dynastic Government

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  • Roger Lagunoff

    (Georgetown University)

Abstract

This paper examines the mechanics of intertemporal information provision in {\em dynastic governments}. It has been suggested that ``horizontal accountability," i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of information. The results here suggest a cautious approach to that view. Government is modelled as a dynastic sequence of regimes. Each regime rules for one period, chooses an expenditure level, then relinquishes power to its successor. When information about past policy choices comes exclusively from the reports of previous regimes, each regime has an incentive to choose its (suboptimal) one shot expenditure policy, and then misrepresent its choice to its successor. I examine the credible communication equilibria taking into account the reporting incentives of an auditor who can independently verify the information each period. In an environment where ``liberal" (i.e., those prefering larger government expenditures) and ``conservative" (those prefering smaller expenditures) regimes and auditors evolve over time, it is shown that: ``conservative" (``liberal") auditors are not credible when the current regime is also ``conservative" (``liberal"). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, effective deterrents even in the ``good" periods (when the auditor's and the regime's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices. The main result shows that these constraints typically bind away from optimal policies in standard constructions of equilibrium.

Suggested Citation

  • Roger Lagunoff, 2002. "Credible Communication in Dynastic Government," Game Theory and Information 0203003, EconWPA.
  • Handle: RePEc:wpa:wuwpga:0203003
    Note: Type of Document - LaTex; prepared on PC ; to print on Best on Postscript ; pages: 28; figures: included
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    References listed on IDEAS

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    Cited by:

    1. Lagunoff, Roger, 2009. "Dynamic stability and reform of political institutions," Games and Economic Behavior, Elsevier, vol. 67(2), pages 569-583, November.
    2. Roger Lagunoff (Georgetown University), 2005. "Markov Equilibrium in Models of Dynamic Endogenous Political Institutions," Working Papers gueconwpa~05-05-07, Georgetown University, Department of Economics.
    3. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2012. "Communication and Learning," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 419-450.
    4. Roger Lagunoff, 2004. "The Dynamic Reform of Political Institutions," Econometric Society 2004 Latin American Meetings 47, Econometric Society.
    5. Egorov, Georgy & Sonin, Konstantin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," CEPR Discussion Papers 5092, C.E.P.R. Discussion Papers.
    6. Heyes, Anthony & Kapur, Sandeep, 2012. "Community pressure for green behavior," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 427-441.
    7. Georgy Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Politics of Succession," Game Theory and Information 0505003, EconWPA.

    More about this item

    Keywords

    dynastic government; dynamic policy bias; auditor neutrality; credible communication;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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