Soothing politics


Journal of Public Economics

December 2014, vol. 120, pp.126-133

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Keywords: Political economy of reforms, Political agency, Selective memory

Weconsider a political agency modelwhere voters learn information about some policy-relevant variable,which they can ignorewhen it impedes their desire to hold optimistic beliefs. Voters' excessive tendency to sustain optimism may result in inefficient political decision-making because political courage does not pay off when voters have poor information. However, voters infer information from policies and incentives to ignore bad news decrease when policy-making is more efficient. This generates multiple equilibria: an equilibrium where voters face up to the reality and politicians have political support to implement optimal policies, and another where they shy away from reforms to cater to the electorate's demand for soothing policies