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Credible communication in dynastic government [An article from: Journal of Public Economics]
Book Details
Author(s)R. Lagunoff
PublisherElsevier
ISBN / ASINB000RR5LE6
ISBN-13978B000RR5LE7
AvailabilityAvailable for download now
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Journal of Public Economics, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
This paper studies information disclosure in a model of dynastic government. When information about past policy choices comes exclusively from the reports of previous administrations, each administration has an incentive to choose its (suboptimal) one-shot expenditure policy, and then misrepresent its choice to its successor. Consequently, it has been suggested that ''horizontal accountability,'' i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of a government's activities. This paper suggests a cautious approach to that view. The baseline model examines the reporting incentives of an external auditor who can independently verify the information each period. Even with auditing, credible disclosure is shown to be problematic. Various extensions to this baseline model are examined. In one extension, ''liberal'' (i.e., those prefering larger government expenditures) and ''conservative'' (those prefering smaller expenditures) regimes and auditors evolve over time. It is shown that ''conservative'' (''liberal'') auditors are not credible when the current regime is also ''conservative'' (''liberal''). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, effective deterrents even in the ''good'' periods (when the auditor's and the administration's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices. These constraints are shown to bind away from optimal policies in standard constructions of equilibrium. Various ways in which auditing protocols can overcome these problems are discussed.
Description:
This paper studies information disclosure in a model of dynastic government. When information about past policy choices comes exclusively from the reports of previous administrations, each administration has an incentive to choose its (suboptimal) one-shot expenditure policy, and then misrepresent its choice to its successor. Consequently, it has been suggested that ''horizontal accountability,'' i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of a government's activities. This paper suggests a cautious approach to that view. The baseline model examines the reporting incentives of an external auditor who can independently verify the information each period. Even with auditing, credible disclosure is shown to be problematic. Various extensions to this baseline model are examined. In one extension, ''liberal'' (i.e., those prefering larger government expenditures) and ''conservative'' (those prefering smaller expenditures) regimes and auditors evolve over time. It is shown that ''conservative'' (''liberal'') auditors are not credible when the current regime is also ''conservative'' (''liberal''). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, effective deterrents even in the ''good'' periods (when the auditor's and the administration's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices. These constraints are shown to bind away from optimal policies in standard constructions of equilibrium. Various ways in which auditing protocols can overcome these problems are discussed.
