Reputation-Concerned Policy Makers and Institution Design
43 Pages Posted: 31 May 2011 Last revised: 15 Aug 2018
Date Written: May 8, 2010
We study the policy choice of an office-holding politician who is concerned with the public’s perception of his capabilities. The politician decides whether to maintain the status quo or to conduct a risky reform. The success of the reform depends critically upon the capability of the politician, which is privately known to the politician. The public observes both his policy choice and the outcome of the reform, and assesses the politician’s competence. We show that politicians may engage in socially detrimental reform in order to be perceived as more capable. We investigate the institutional remedy that balances the gains and costs when the policy maker is subject to reputation concerns. Conservative institutions that thwart reform may potentially improve social welfare.
Keywords: C72, D72, D82
JEL Classification: Reform, Reputation, Ability, Conservatism
Suggested Citation: Suggested Citation