Equilibrium Reforms and Endogenous Complexity

57 Pages Posted: 18 Aug 2020

See all articles by Dana Foarta

Dana Foarta

Stanford Graduate School of Business

Massimo Morelli

Bocconi University

Date Written: August 2020


Decision makers called to evaluate and approve a reform, proposed by an interest group, a politician, or a bureaucracy, suffer from a double asymmetric information problem: about the competence of the proposer and the consequences of the proposal. Moreover, the ability of decision makers to evaluate proposals depends on the complexity of the legislative environment, itself a product of past reforms. We model the strategic interaction between reformers and decision makers as a function of legislative complexity, and study the dynamics of endogenous complexity and stability of reforms. Complexi cation-simpli cation cycles can occur on the equilibrium path, and expected long-run complexity may be higher when competence of reform proposers is lower. The results apply to regulatory reforms, legislative politics, and institutional design.

Keywords: bureaucracy, Checks and balances, competence, Incremental Reforms, Information, interest groups, Politicians, Regulatory Complexity

JEL Classification: D73, G28, H83, L51

Suggested Citation

Foarta, Dana and Morelli, Massimo, Equilibrium Reforms and Endogenous Complexity (August 2020). CEPR Discussion Paper No. DP15136, Available at SSRN: https://ssrn.com/abstract=3674924

Dana Foarta (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Massimo Morelli

Bocconi University ( email )

Via Roentgen 1
Milan, 20136

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics