Restrictions to the range of policies available to governments are often recommended as a solution to coordination failures or time inconsistency problems. However, policy restrictions can have important drawbacks that have been generally ignored so far. When the hands of governments are tied, citizens have lower incentives to be informed on political matters and to participate in collective decision-making processes, since private returns from political informa- tion are lower. However, a scal policy restriction tends to reduce redistribution by inducing lower political information acquisition by part of poorer voters. This mechanism provides a microfoundation for the idea that the so-called "democratic de cit" induces low participation in political life. Perversely, the equilibrium outcome can be very di¤erent from what the re- striction intended to achieve. With this ideas in mind we test the key prediction of our model in a controlled laboratory experiment and nd evidence in support of our ndings: restricting the policy space in the presence of asymmetric information can have perverse effects.
The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information
LARCINESE, VALENTINO
2012
Abstract
Restrictions to the range of policies available to governments are often recommended as a solution to coordination failures or time inconsistency problems. However, policy restrictions can have important drawbacks that have been generally ignored so far. When the hands of governments are tied, citizens have lower incentives to be informed on political matters and to participate in collective decision-making processes, since private returns from political informa- tion are lower. However, a scal policy restriction tends to reduce redistribution by inducing lower political information acquisition by part of poorer voters. This mechanism provides a microfoundation for the idea that the so-called "democratic de cit" induces low participation in political life. Perversely, the equilibrium outcome can be very di¤erent from what the re- striction intended to achieve. With this ideas in mind we test the key prediction of our model in a controlled laboratory experiment and nd evidence in support of our ndings: restricting the policy space in the presence of asymmetric information can have perverse effects.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.