Chaos and Unpredictability in Dynamic Social Problems

Marco Battaglini

No 28347, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a dynamic model of environmental protection in which the level of pollution is a state variable that strategically links policy making periods. Policymakers are forward looking but politically motivated: they have heterogeneous preferences and do not fully internalize the cost of pollution. This type of political economy model is often reduced to a "modified" planner's problem, and yields predictions that are qualitatively similar to a planner's constrained optimum, albeit with a bias: too much pollution in the steady state (or, in other applications, too little investment in public goods, too much public debt, etc.). We highlight conditions under which this reduction is not possible, and the dynamic time inconsistency generated by the political process is responsible for a new type of distortion. Under these conditions, there are equilibria in which, for a generic economy and generic initial conditions, the state evolves in complex cycles, or unpredictable chaotic dynamics. Depending on the fundamentals of the economy, these equilibria may generate ergodic distributions that consistently overshoot the planner's steady state of pollution, or that fluctuate around it.

JEL-codes: D71 D72 D78 H23 Q50 (search for similar items in EconPapers)
Date: 2021-01
Note: POL
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.nber.org/papers/w28347.pdf (application/pdf)

Related works:
Working Paper: Chaos and Unpredictability in Dynamic Social Problems (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28347

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28347

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().