Complexity and the Reform Process

Dana Foarta and Massimo Morelli
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Massimo Morelli: Bocconi U and IGIER

Research Papers from Stanford University, Graduate School of Business

Abstract: Decision makers called to evaluate and approve a reform proposed by a politician, a bureaucrat, or an interest group face a double asymmetric information problem: about the competence of the proposer and the consequences of the proposal. Moreover, the ability of decision makers to evaluate proposals depends on the complexity of the legislative environment, itself a product of past reforms. We model the strategic interaction between reformers and decision makers as a function of legislative complexity and study the resulting endogenous complexity and stability of reforms. Reform complexity is non-monotonic in the expected competence of the proposer. Dynamically, complexification-simplification cycles can occur on the equilibrium path. Expected complexity is path dependent when competence of reform proposers is lower, leading to 'complexity traps,' with bad or unnecessary complex reforms, or 'inaction traps,' where reforms are blocked. The results nest and reconcile a number of recent findings in legislative and regulation studies, and provide implications for institutional design.

JEL-codes: D73 G28 H83 L51 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-mic and nep-reg
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Complexity and the Reform Process (2021)
Working Paper: Equilibrium Reforms and Endogenous Complexity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3891

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