Policy Making in Times of Crisis

• In Event: Accountability, Crisis and Excuse-Making

Abstract

In this paper, we present a formal model to analyze the impact of exogenous crises on policy experimentation. While existing work focuses on how crises impact voters’ demand for extreme platforms or reform, we investigate how exogenous shocks may alter politicians’ incentives to supply policy experimentation. In our setting, voters face uncertainty over their optimal policy and about politicians’ competence. Crises give voters an opportunity to learn about politicians’ ability. However, the amount of voter learning about the optimal platform depends endogenously on the policy that is implemented in equilibrium. In particular, we show that more extreme policies induce the voters to learn more about their optimal platform. Consequently, policy makers have an opportunity to preemptively react to a crisis in order to mitigate the risk of the voters updating negatively about their competence. Thus, the risk of being hit by a crisis potentially alters office holders’ taste for policy experimentation. The prospect of a crisis may incentivize the incumbent to engage in extreme policies in in hopes of changing voters’ future policy preferences, so as to generate ideological ‘insurance’. Alternatively, it may motivate the office holder to play it safe, as the risk exogenously imposed by a crisis makes him more vulnerable to shocks to the voters’ policy preferences. We identify the conditions under which one or the other effect dominates in equilibrium.

Authors

• Peter Bils

• Federica Izzo, UCSD