Ex Post Inefficiency in a Political Agency Model

29 Pages Posted: 5 Apr 2004

See all articles by Georges Casamatta

Georges Casamatta

Toulouse School of Economics (GREMAQ-CNRS); Centre for Economic Policy Research (CEPR)

Caroline De Paoli

University of Toulouse 1 - Manufacture des Tabacs; École Normale Supérieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA)

Date Written: February 2004

Abstract

We extend the model of Schultz (1996) to a dynamic setting with no policy commitment. Two parties that compete for election must choose the level of provision of a public good, as well as the tax payment needed to finance it. The cost of producing the good may be high or low and this information is not known to the voters. We show that there exists an equilibrium in which the party that does not want much of the public good use the inefficient (high cost) technology even though the efficient one is available. Using the low cost technology would, by informing the voters about the cost parameter, force it to produce an excessively high level of the good. Interestingly, this equilibrium is not symmetric, suggesting that a party with a strong taste for the public good is less likely to adopt a wasteful policy.

Keywords: Commitment, dynamic electoral competition, ratchet effect

JEL Classification: D72, D82, H41

Suggested Citation

Casamatta, Georges and De Paoli, Caroline, Ex Post Inefficiency in a Political Agency Model (February 2004). CEPR Discussion Paper No. 4275. Available at SSRN: https://ssrn.com/abstract=527082

Georges Casamatta (Contact Author)

Toulouse School of Economics (GREMAQ-CNRS) ( email )

Manufacture des Tabacs (bât. F)
21 Allee de Brienne
31000 Toulouse
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Caroline De Paoli

University of Toulouse 1 - Manufacture des Tabacs ( email )

21, allée de Brienne
Toulouse, 31000
France

École Normale Supérieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA) ( email )

48 boulevard Jourdan
75014 Paris
France

Register to save articles to
your library

Register

Paper statistics

Downloads
11
Abstract Views
789
PlumX Metrics