Guns, Latrines, and Land Reform: Private Expectations and Public Policy

15 Pages Posted: 25 Jan 2016 Last revised: 3 Feb 2016

See all articles by Michael Kremer

Michael Kremer

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER); Center for Global Development; Harvard University - Harvard Kennedy School (HKS)

Jack Willis

Harvard University - Department of Economics

Date Written: January 2016

Abstract

Dynamically and statically optimal Pigouvian subsidies on durables will differ in a growing economy. For durables with positive externalities, such as sanitation, statically optimal subsidies will typically grow. However, in a dynamic game, governments can most cheaply induce optimal purchasing time by committing to eventually reduce subsidies. If governments cannot commit, there may be multiple, Pareto-ranked equilibria. The presence of multiple subsidizing bodies, including foreign donors, makes commitment more difficult. As a result, consumers may actually delay purchase, rationally anticipating growing subsidies. In the extreme, the benefits of foreign subsidies for durables that create positive externalities may be more than fully offset by such delays in private investment. For durables with negative externalities, such as guns, delays between the announcement and implementation of taxes or regulation may bring forward purchase, potentially causing policymakers who would otherwise prefer such policies to abandon them. Political actors may also be able to shape others’ policy preferences by changing private expectations. For example, a political party that announces an intent to redistribute land may reduce current owners' investment incentives, thus reducing the benefits of maintaining existing property rights and making land reform more attractive to the median voter.

Suggested Citation

Kremer, Michael R. and Willis, Jack, Guns, Latrines, and Land Reform: Private Expectations and Public Policy (January 2016). NBER Working Paper No. w21915. Available at SSRN: https://ssrn.com/abstract=2721776

Michael R. Kremer (Contact Author)

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Jack Willis

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