DP15136 Equilibrium Reforms and Endogenous Complexity
Author(s): | Dana Foarta, Massimo Morelli |
Publication Date: | August 2020 |
Keyword(s): | bureaucracy, Checks and balances, competence, Incremental Reforms, Information, interest groups, Politicians, Regulatory Complexity |
JEL(s): | D73, G28, H83, L51 |
Programme Areas: | Public Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=15136 |
Decision makers called to evaluate and approve a reform, proposed by an interest group, a politician, or a bureaucracy, suffer from a double asymmetric information problem: about the competence of the proposer and the consequences of the proposal. Moreover, the ability of decision makers to evaluate proposals depends on the complexity of the legislative environment, itself a product of past reforms. We model the strategic interaction between reformers and decision makers as a function of legislative complexity, and study the dynamics of endogenous complexity and stability of reforms. Complexication-simplication cycles can occur on the equilibrium path, and expected long-run complexity may be higher when competence of reform proposers is lower. The results apply to regulatory reforms, legislative politics, and institutional design.