Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/217100
Authors: 
Austen-Smith, David
Dziuda, Wioletta
Harstad, Bård
Loeper, Antoine
Year of Publication: 
2019
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 14 [Year:] 2019 [Issue:] 4 [Pages:] 1483-1534
Abstract: 
Why do rational politicians choose inefficient policy instruments? Environmental regulation, for example, often takes the form of technology standards and quotas even when cost-effective Pigou taxes are available. To shed light on this puzzle, we present a stochastic game with multiple legislative veto players and show that inefficient policy instruments are politically easier than efficient instruments to repeal. Anticipating this, heterogeneous legislators agree more readily on an inefficient policy instrument. We describe when inefficient instruments are likely to be chosen, and predict that they are used more frequently in (moderately) polarized political environments and in volatile economic environments. We show conditions under which players strictly benefit from the availability of the inefficient instrument.
Subjects: 
Dynamic games
bargaining
political economy
political instruments
JEL: 
D78
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/4.0/
Document Type: 
Article

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