DP16562 Complexity and the Reform Process

Author(s): Dana Foarta, Massimo Morelli
Publication Date: September 2021
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16562

Reform processes commonly involve professional bureaucrats drafting policies to be adopted by political decision makers. Conflicts of interest between these two groups may give rise to pandering in policymaking. We expand the standard pandering setup in two directions. First, we allow for policies to differ in their complexity. Second, we model the dynamic consequences of reforms, where a complex (simple) policy complexifies (simplifies) the legislative environment in which subsequent policies are drafted. We show that pandering motivates inefficient complex policies, which beget complexity in the legislative environment. We derive conditions under which the complexity build-up is bounded. Stabilization around an intermediate level of complexity is achieved under high uncertainty around the type of policy reform suited to current conditions and around the bureaucracy's capacity to implement it. When complex reforms are expected to be the right ones but bureaucratic capacity is uncertain, the legislative environment may enter a trap of ever increasing complexity.