Why Do Policy Makers Stick to Inefficient Decisions?
Robert Dur
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)
June 1999
Erasmus University Rotterdam Working Paper No. 99na
Abstract:
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, D78
working papers series
Suggested Citation
Dur, Robert, Why Do Policy Makers Stick to Inefficient Decisions? (June 1999). Erasmus University Rotterdam Working Paper No. 99na. Available at SSRN: http://ssrn.com/abstract=168789 or http://dx.doi.org/10.2139/ssrn.168789
