Reversal Costs and Executive Overreach

Barbara Antonioli () and Federico Trombetta ()

No dis2602, DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo from Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS)

Abstract: Executives may implement legally contestable policies aggressively before courts reach a final legality determination, creating reliance and other sunk effects that make reversal costly. We study a complete-information sequential game in which an executive chooses policy aggressiveness and a court then decides whether to uphold the policy or strike it. If reversal costs increase sufficiently convexly in aggressiveness, the court strikes mild policies but upholds sufficiently aggressive ones to avoid disruption. Anticipating this, the executive overreaches—choosing a policy more extreme than its ideal point—to deter full reversal, yielding inefficient excess implementation relative to a commitment benchmark. Institutions that limit pre-review sunk effects (stays, phased implementation, expedited review) mitigate this distortion.

JEL-codes: D72 D74 K23 K40 P16 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-gth, nep-law and nep-mic
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