Dynamic Government Performance: Honeymoons and Crises of Confidence

Torun Dewan and David Myatt

American Political Science Review, 2012, vol. 106, issue 1, 123-145

Abstract: We use a formal theoretical framework to explore the interplay between a government's longevity and its performance. Ministers perform well when their careers are valuable; this is so when the government's duration is expected to be long; the government's survival depends on its popularity; and, finally, that popularity depends on its ministers’ performance. The feedback loop between performance and longevity means that multiple rational-expectations equilibria can arise: Ministers work hard for a popular government, but divert efforts elsewhere if they believe the government is doomed; these alternatives are both self-fulfilling prophecies. However, the presence of (perhaps small) random events that buffet the performance and popularity of a government is sufficient to pin down a unique equilibrium. We explore the dynamics that arise: A crisis of confidence involving the rapid collapse of a government's performance is sparked when a sequence of negative shocks push the popularity of the government below a unique critical threshold.

Date: 2012
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Working Paper: Dynamic Government Performance: Honeymoons and Crises of Confidence (2010)
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