On the optimality of policy choices in the face of biased beliefs, retrospective voting and the down-up problem

• Type: Article in International Scientific Journal
• Date: 2024

Authors

Seixas, C (Author) FEP; Lourenço, D (Author) FEP

Journal

Title: SOCIAL CHOICE AND WELFARE

Vol. 63

Pages: 299-321

ISSN: 0176-1714

Indexing

ISI Web of Knowledge - 0 Citations

Scopus - 0 Citations

Other information

Authenticus ID: P-010-MTT

DOI: 10.1007/s00355-024-01533-2

Abstract (EN): Previous literature has shown that voters' biased beliefs regarding policy outcomes incentivize the selection of seemingly better, but socially worse, policies. It has also shown that voters' tendency to gauge an incumbent's competence by the present state of the economy (retrospective voting) could counteract biased beliefs. In this article, we argue that, when the advantageous consequences of a measure of policy only accrue with considerable lag (the down-up problem), retrospective voting instead amplifies the effects of biased beliefs. Still, we find that it may nevertheless be optimal for an incumbent to select good long-term policies if the incumbent is strongly motivated by the success of the chosen policies. Finally, we investigate the robustness of these conclusions by considering an incumbent bias, limited accountability, and the introduction of incentive and threshold contracts.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 23