Hoping for the Best, Unprepared for the Worst

38 Pages Posted: 22 Aug 2013 Last revised: 7 Mar 2015

See all articles by Justin Fox

Justin Fox

Washington University in St. Louis - Department of Political Science

Richard Van Weelden

University of Chicago - Department of Economics

Date Written: March 6, 2015

Abstract

We explore the incentives for a career-minded policymaker to take preventative action to protect a principal against a possible crisis. The policymaker's ability and the action he takes are unobserved, but the principal draws inferences about the policymaker's ability based on the resulting outcome before deciding whether to retain him. When the crisis is potentially catastrophic, it is in the principal's interest for the policymaker to take preventative action. However, when the crisis is sufficiently rare, he fails to do so. Instead, the policymaker directs his efforts toward activities that enhance the principal's welfare when the crisis doesn't materialize. This distortion is driven by the policymaker's desire to be retained together with the inability of the principal to observe the policymaker's action. Our framework provides a novel explanation for why policymakers often fail to prepare effectively for rare disasters and other potential crises and contributes to a growing literature on electorally induced distortions in multi-task problems.

Keywords: disaster preparedness, political agency

JEL Classification: D72

Suggested Citation

Fox, Justin and Van Weelden, Richard, Hoping for the Best, Unprepared for the Worst (March 6, 2015). Available at SSRN: https://ssrn.com/abstract=2301954 or http://dx.doi.org/10.2139/ssrn.2301954

Justin Fox (Contact Author)

Washington University in St. Louis - Department of Political Science ( email )

One Brookings Drive
Campus Box 1063
St. Louis, MO 63130
United States

HOME PAGE: http://sites.wustl.edu/justinfox/

Richard Van Weelden

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States