Complexity and the Reform Process

Massimo Morelli and Dana Foarta

No 16562, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Reform processes commonly involve professional bureaucrats drafting policies to be adopted by political decision makers. Conflicts of interest between these two groups may give rise to pandering in policymaking. We expand the standard pandering setup in two directions. First, we allow for policies to differ in their complexity. Second, we model the dynamic consequences of reforms, where a complex (simple) policy complexifies (simplifies) the legislative environment in which subsequent policies are drafted. We show that pandering motivates inefficient complex policies, which beget complexity in the legislative environment. We derive conditions under which the complexity build-up is bounded. Stabilization around an intermediate level of complexity is achieved under high uncertainty around the type of policy reform suited to current conditions and around the bureaucracy's capacity to implement it. When complex reforms are expected to be the right ones but bureaucratic capacity is uncertain, the legislative environment may enter a trap of ever increasing complexity.

Date: 2021-09
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Working Paper: Complexity and the Reform Process (2020)
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