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Why do Policy Makers stick to Inefficient Decisions?

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  • Robert A.J. Dur

    (Erasmus Universiteit Rotterdam)

Abstract

This paper offers an explanation for why policy makers stick to inefficient policy decisions. I argue that repealing a policy is a bad signal to voters about the policy maker's competence if voters do not have complete knowledge about the effects of implemented policies. I derive the optimal policy maker's decision on continuation of a policy, assuming that voters' beliefs about the policy maker's competence are updated according to Bayes' rule. I show that if the policy maker cares sufficiently about reelection, he will never repeal a policy.

Suggested Citation

  • Robert A.J. Dur, 1999. "Why do Policy Makers stick to Inefficient Decisions?," Tinbergen Institute Discussion Papers 99-050/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19990050
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    References listed on IDEAS

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    Cited by:

    1. Anders Gustafsson, 2019. "Busy doing nothing: why politicians implement inefficient policies," Constitutional Political Economy, Springer, vol. 30(3), pages 282-299, September.
    2. Kärnä, Anders & Öhberg, Patrik, 2022. "Misrepresentation and Migration," Working Paper Series 1445, Research Institute of Industrial Economics, revised 11 May 2023.
    3. V. Bhaskar & Caroline Thomas, 2019. "The Culture of Overconfidence," American Economic Review: Insights, American Economic Association, vol. 1(1), pages 95-110, June.
    4. Mitja Cok & Polona Domadenik & Tjasa Redek & Miroslav Verbic, 2009. "Labour market reforms in the context of political power theory: The case of Slovenia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 27(1), pages 57-82.
    5. Magnus Henrekson & Anders Kärnä & Tino Sanandaji, 2022. "Schumpeterian entrepreneurship: coveted by policymakers but impervious to top-down policymaking," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 867-890, July.
    6. FU, Qiang & LI, Ming, 2010. "Policy Making with Reputation Concerns," Cahiers de recherche 09-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    7. Klaas J. Beniers, 2005. "Party Governance and the Selection of Parliamentarians," Tinbergen Institute Discussion Papers 05-080/1, Tinbergen Institute.
    8. Louis Jaeck, 2011. "Information and political failures: to what extent does rational ignorance explain irrational beliefs formation?," Constitutional Political Economy, Springer, vol. 22(3), pages 287-301, September.
    9. Pitlik, Hans & Wirth, Steffen, 2003. "Do crises promote the extent of economic liberalization?: an empirical test," European Journal of Political Economy, Elsevier, vol. 19(3), pages 565-581, September.
    10. Thomas, Caroline, 2019. "Experimentation with reputation concerns – Dynamic signalling with changing types," Journal of Economic Theory, Elsevier, vol. 179(C), pages 366-415.
    11. Cécile Aubert & Huihui Ding, 2022. "Voter conformism and inefficient policies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 59(1), pages 207-249, July.
    12. Klaas Beniers & Robert Dur, 2007. "Politicians’ motivation, political culture, and electoral competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(1), pages 29-54, February.
    13. Robert Dur & Arjan Non & Paul Prottung & Benedetta Ricci, 2023. "Who’s Afraid of Policy Experiments?," Tinbergen Institute Discussion Papers 23-027/V, Tinbergen Institute.
    14. Hwang, In Do & Lustenberger, Thomas & Rossi, Enzo, 2021. "Does communication influence executives’ opinion of central bank policy?☆," Journal of International Money and Finance, Elsevier, vol. 115(C).
    15. Edomah, Norbert & Foulds, Chris & Jones, Aled, 2017. "Policy making and energy infrastructure change: A Nigerian case study of energy governance in the electricity sector," Energy Policy, Elsevier, vol. 102(C), pages 476-485.
    16. Yoh, Allison & Taylor, Brian D. & Gahbauer, John, 2012. "Does Transit Mean Business? Reconciling academic, organizational, and political perspectives on Reforming Transit Fare Policies," University of California Transportation Center, Working Papers qt6dv295b7, University of California Transportation Center.
    17. Kimiko Terai & Amihai Glazer, 2015. "Principal-Agent Problems When Principal Allocates a Budget," Keio-IES Discussion Paper Series 2015-012, Institute for Economics Studies, Keio University.
    18. Kärnä, Anders & Karlsson, Johan & Engberg, Erik & Svensson, Peter, 2020. "Political Failure: A Missing Piece in Innovation Policy Analysis," Working Paper Series 1334, Research Institute of Industrial Economics, revised 21 Apr 2022.
    19. In Do Hwang & Dr. Enzo Rossi, 2020. "Does communication influence executives' opinion of central bank policy?," Working Papers 2020-17, Swiss National Bank.

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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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