Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: How do crises influence an executive's willingness to implement policy reforms? While existing work focuses on how crises impact voters' demand for reform, we instead investigate how they alter politicians' incentives to supply policy experimentation, even if the crisis does not shift voters' policy preferences. To study this problem, we develop a model of elections and policy experimentation. In our setting, voters face uncertainty about their optimal policy and politicians' ability to manage a crisis. We show that extreme reforms generate more information for voters about their optimal platform. Consequently, the incumbent has electoral incentives to engage in information control. At the same time, a crisis represents an exogenous test for the incumbent, who must prove competent enough to successfully manage the country during turbulent times. Therefore, a crisis has an (independent) impact on the incumbent's electoral prospects, and this may influence his incentives to engage in risky policy experiments. We find that, in contrast to the conventional wisdom, a crisis induces bolder policy reforms only when the incumbent is sufficiently likely to be competent. If the incumbent is relatively unlikely to be competent, then the crisis instead results in policies that are closer to the status quo. As such, our model qualifies the standard intuition on this matter, and potentially allows us to make sense of the mixed results emerging in the empirical literature.

Joint work with Peter Bils.