Endogenous Present-Biasedness and Policy Implementation
30 Pages Posted: 5 Oct 2006
Date Written: August 2006
We show that under a two-party political system the party in office tends to be present-biased and time-inconsistent. This may lead to inefficient procrastination of socially beneficial projects. However, procrastination needs not be indefinite. There exist equilibria in which the project is carried out, maybe even in finite time. The procrastination problem tends to get more serious as the cost of the project gets higher. When the cost is low, there is no procrastination problem. When the cost is high, the project can be procrastinated indefinitely, though there exist equilibria in which the project is implemented gradually, with the process going on for a long time.
Keywords: endogenous present-biasedness, hyperbolic discounting, time-inconsistency, procrastination, multi-party political system, policy implementation
JEL Classification: C70, D11, D60, D72, D78, D91
Suggested Citation: Suggested Citation