xmlui.dri2xhtml.METS-1.0.item-contributor-funder:
Comunidad de Madrid European Commission Ministerio de Economía y Competitividad (España)
Sponsor:
Harstad’s part of the research received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 Research and Innovation Program (Grant 683031). Antoine Loeper gratefully acknowledges the support of the Fundación Ramón Areces, of the Ministerio de Economía y Competitividad (Spain), grants RYC-2015-18326, ECO 2016-75992-P, and MDM 2014-0431, and of the Comunidad de Madrid, grant MadEco-CM (S2015/HUM-3444).
Project:
info:eu-repo/grantAgreement/EC/H2020/683031/CONSERVATION Gobierno de España. RYC-2015-18326 Gobierno de España. ECO2016-75992-P Gobierno de España. MDM 2014-0431 Comunidad de Madrid. S2015/HUM-3444
Keywords:
Dynamic games
,
Political economy
,
Political instruments
,
Bargaining
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 stoWhy 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 to repeal than efficient instruments. 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.[+][-]