Hoping for the best, unprepared for the worst

• 成果类型: Article
• 署名作者: Fox, Justin; Van Weelden, Richard
• 署名单位: Washington University (WUSTL); University of Chicago
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2015.07.007
• 发表日期: 2015
• 页码: 59-65
• 关键词: Principal-agent; Multi-task; reputation; CRISIS; Disaster preparedness

摘要

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. (C) 2015 Elsevier B.V. All rights reserved.