Information Discovery for Industrial Policy

Abstract

Amid growing interest in industrial policy, we develop a model exploring the tension between market-driven information discovery and policymakers’ career incentives. While market-based information discovery can help address informational barriers faced by policymakers, career incentives may lead them to aggressively pursue their agendas to signal political capability, shifting dynamics toward a government-centric equilibrium. In this equilibrium, market participants focus on policy-related information over industry fundamentals, weakening the market’s role in information discovery and reducing policy efficiency. Our analysis highlights the importance of bureaucratic frictions and market-based information discovery in jointly shaping the effectiveness of industrial policy implementation.

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