A Theory of Conservatism

28 Pages Posted: 14 Apr 1999

See all articles by Hao Li

Hao Li

University of Toronto - Department of Economics; Queen's University - Department of Economics

Date Written: March 1999

Abstract

A free-rider problem arises in a group when a public decision between two alternatives must be made based on privately collected evidence, leading to insufficient effort in gathering evidence and ex ante welfare loss for the group. To alleviate the free-rider problem, the group can commit to a "conservative" rule whereby the decision is made against the alternative favored by the group's preference or prior when evidence supports the alternative but is not preponderant. For example, if a recruitment committee is biased toward making an offer to a job candidate, either because the committee is more concerned with wrongful rejection than with wrongful hiring or because it has high prior that the candidate is qualified, then a conservative rule with a hiring standard higher than what is ex post optimal given the evidence can induce committee members to examine the candidate's record more carefully and improve the quality of the hiring decision. This result that a conservative decision rule induces greater individual effort in collecting evidence explains why sometimes groups appear overly cautious toward favored alternatives. It is further extended to heterogeneous groups and private evidence.

JEL Classification: D70

Suggested Citation

Li, Hao, A Theory of Conservatism (March 1999). Available at SSRN: https://ssrn.com/abstract=156848 or http://dx.doi.org/10.2139/ssrn.156848

Hao Li (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-5105 (Phone)

Queen's University - Department of Economics ( email )

Dunning Hall
Kingston, Ontario K7L 3N6
Canada
613-533-2275 (Phone)
613-533-6668 (Fax)

HOME PAGE: http://www.econ.queensu.ca/pub/faculty/li/

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