Why Do Policy Makers Stick to Inefficient Decisions?
Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
Erasmus University Rotterdam Working Paper No. 99na
This paper offers an explanation for why policy makers stick to inefficient policy decisions. I argue that repealing a policy is a bad signal to voters about the policy maker's competence if voters do not have complete knowledge about the effects of implemented policies. I derive the optimal policy maker's decision on continuation of a policy, assuming that voters' beliefs about the policy maker's competence are updated according to Bayes' rule. I show that if the policy maker cares sufficiently about reelection, he will never repeal a policy.
Number of Pages in PDF File: 21
JEL Classification: D72, D78working papers series
Date posted: August 11, 1999
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