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The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information*

Published online by Cambridge University Press:  27 June 2016

Rafael Hortala-Vallve  and
Valentino Larcinese
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Abstract

Institutions have the power to limit a government’s policy options. Policy restrictions are often used as solutions to coordination failures or time inconsistency problems. However, policy constraints can have significant drawbacks and these disadvantages have, to date, been overlooked in the literature. When institutional constraints tie a government’s hands, citizens will have less incentive to become informed about politics and participate in collective decision-making. This is because policy restrictions lower the private returns of political information. A fiscal policy restriction, for example, may decrease redistribution by lowering a poorer voters’ acquisition of political information. We illustrate our theoretical findings with numerical simulations and find that in one in three cases these policy restrictions make poorer voters worse off.

Type
Original Articles
Information
Political Science Research and Methods , Volume 5 , Issue 3 , July 2017 , pp. 411 - 425
Copyright
© The European Political Science Association 2016 

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Footnotes

*

Rafael Hortala-Vallve, Associate professor, Department of Government, London School of Economics, Houghton Street, London WC2A 2AE, UK. ([email protected]). Valentino Larcinese, Professor, Department of Government, London School of Economics, Houghton Street, London WC2A 2AE, UK. ([email protected]). To view supplementary material for this article, please visit http://dx.doi.org/10.1017/psrm.2016.30.

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