Hoping for the Best, Unprepared for the Worst
38 Pages Posted: 22 Aug 2013 Last revised: 7 Mar 2015
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Wrong Kind of Transparency
By Andrea Prat
-
The Wrong Kind of Transparency
By Andrea Prat
-
Fiscal Restraints and Voter Welfare
By Timothy J. Besley and Michael Smart
-
By J.c. Ely, Drew Fudenberg, ...
-
By Drew Fudenberg, J.c. Ely, ...
-
Does Government Decentralization Increase Policy Innovation?
-
Yardstick Competition and Political Agency Problems
By Paul Belleflamme and Jean Hindriks
-
Strategic Consultation in the Presence of Career Concerns
By Gilat Levy
-
Political Yardstick Competition, Economic Integration, and Constitutional Choice in a Federation