First-Mover Disadvantage: The Politics of Financial Crisis Response in Japan and the United States
Phillip Y. Lipscy
Stanford University - Department of Political Science
affiliation not provided to SSRN
May 1, 2011
We propose that policymakers responding to novel contingencies are subject to first-mover disadvantage. Like innovation in the private sector, developing effective solutions to novel policy problems requires a messy process of discovery, experimentation, and repeated failure. Much as late-industrializing countries adapted the methods and technologies of early developers, second-movers can apply effective policies demonstrated by first-movers in a more targeted, efficient, and rapid manner. Without accounting for this possibility, scholars may reach biased inferences about cross-national variation in political and economic outcomes. We illustrate this theory by examining the response of Japan to its “lost decade” in the 1990s, particularly in comparison with the US subprime crisis of 2008. Most existing accounts of Japan’s slow, ineffective response have focused on country-specific factors such as structural problems and macroeconomic policy mistakes. We show that, consistent with our theory, Japanese financial authorities underwent a lengthy process of discovery, policy experimentation, and innovation during the the 1990s. When the subprime crisis occurred in 2008, US policymakers explicitly adopted successful policy solutions from Japan and applied them with greater scale and rapidity.
Number of Pages in PDF File: 41
Keywords: Japan, financial, crisis, lost decade, bailout, monetary policy, policy innovation, learning
JEL Classification: E4, E5, E6, F3, F4, G2working papers series
Date posted: July 23, 2011
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