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Dynamic Government Performance: Honeymoons and Crises of Confidence

Published online by Cambridge University Press:  20 February 2012

TORUN DEWAN  and
DAVID P. MYATT
TORUN DEWAN*
Affiliation:
London School of Economics and Political Science
DAVID P. MYATT*
Affiliation:
London Business School
*
Torun Dewan is Professor in Political Science, London School of Economics and Political Science, Houghton Street, London WC2A 2AEUnited Kingdom ([email protected]).
David P. Myatt is Professor of Economics, London Business School, Regent's Park, London NW1 4SAUnited Kingdom ([email protected]).
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Abstract

We use a formal theoretical framework to explore the interplay between a government's longevity and its performance. Ministers perform well when their careers are valuable; this is so when the government's duration is expected to be long; the government's survival depends on its popularity; and, finally, that popularity depends on its ministers’ performance. The feedback loop between performance and longevity means that multiple rational-expectations equilibria can arise: Ministers work hard for a popular government, but divert efforts elsewhere if they believe the government is doomed; these alternatives are both self-fulfilling prophecies. However, the presence of (perhaps small) random events that buffet the performance and popularity of a government is sufficient to pin down a unique equilibrium. We explore the dynamics that arise: A crisis of confidence involving the rapid collapse of a government's performance is sparked when a sequence of negative shocks push the popularity of the government below a unique critical threshold.

Type
Research Article
Information
American Political Science Review , Volume 106 , Issue 1 , February 2012 , pp. 123 - 145
Copyright
Copyright © American Political Science Association 2012

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