Motivated Reasoning and the Political Economy of Climate Change Inaction

Two office-driven politicians compete in an election by proposing policies. There are two possible states of the world: climate change is either mild, with no lasting effect on welfare if addressed properly, or severe, leading to reduced welfare even with appropriate measures. Voters receive signals about the state but may interpret them in a non-Bayesian way, holding motivated beliefs. An equilibrium always exists where voters ignore signals suggesting severe consequences, causing politicians to propose policies for mild climate change -- even when they know otherwise. If severe climate change leads to only moderate welfare losses, another efficient equilibrium exists. In this equilibrium, voters trust politicians to choose the optimal policies, implying voters choose to trust their signals, which in turn encourages optimal policy choices by politicians. The model highlights the role of political rhetoric and trust in government, and a first glance at the data reveals patterns consistent with the models predictions.