Reform Fatigue

48 Pages Posted: 24 Feb 2016 Last revised: 5 Apr 2016

See all articles by T. Renee Bowen

T. Renee Bowen

University of California, San Diego; National Bureau of Economic Research; Center for Commerce and Diplomacy (CCD)

Jackie Chan

The Chinese University of Hong Kong (CUHK)

Oeindrila Dube

University of Chicago - Harris School of Public Policy

Nicolas S. Lambert

Stanford Graduate School of Business - Knight Management Center

Date Written: March 28, 2016

Abstract

We present a rational theory of reform fatigue. At each instant a politician chooses to divide effort between reforms and the status quo, and this choice is modeled as a two-armed bandit problem. Reforms are expected to yield a higher rate of output to the voter than the status quo conditional on the politician being competent. We interpret competence as the administrative ability to ensure successful implementation of reforms. The politician’s competence is therefore unknown ex-ante to both the politician and the voter. In addition the voter is unable to observe the politician’s effort on reform, but only observes aggregate output. In equilibrium the voter gives the politician endogenous term lengths that depend on the timing of success. The executive experiments with reforms at the beginning of his first term, but gradually decreases the rate of reforms in the absence of early success. We call this gradual reduction in experimentation reform fatigue. The theory thus predicts that reform fatigue follows a political cycle. We provide empirical evidence of reform fatigue cycles in financial policies among presidential countries.

Suggested Citation

Bowen, T. Renee and Chan, Jackie and Dube, Oeindrila and Lambert, Nicolas S., Reform Fatigue (March 28, 2016). Stanford University Graduate School of Business Research Paper No. 3394, Available at SSRN: https://ssrn.com/abstract=2736583 or http://dx.doi.org/10.2139/ssrn.2736583

T. Renee Bowen (Contact Author)

University of California, San Diego ( email )

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HOME PAGE: http://https://sites.google.com/site/tamarareneebowenlyn/

National Bureau of Economic Research ( email )

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Center for Commerce and Diplomacy (CCD) ( email )

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HOME PAGE: http://https://ccd.ucsd.edu/

Jackie Chan

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Oeindrila Dube

University of Chicago - Harris School of Public Policy ( email )

1155 E 60th St
Chicago, IL 60637
United States

Nicolas S. Lambert

Stanford Graduate School of Business - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

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