The Demand for Bad Policy When Voters Underappreciate Equilibrium E¤ects

The Demand for Bad Policy when Voters Underappreciate Equilibrium Effects

We study whether and why voters may choose inefficient policies and institutions. We show that a majority of subjects in an experiment vote against policies that would help them overcome social dilemmas. This is due to their failure to fully anticipate the equilibrium effects of new policies. More precisely, subjects systematically underappreciate the extent to which policy changes affect other...

Online Appendix to The Demand for Bad Policy when Voters Underappreciate Equilibrium Effects

Limited Attention and the Demand for Health Insurance

We analyze how customers with limited attention value and choose among health plans. We show how the model can accommodate four observations regarding plan choice. First, people tend to overweight the premium and thus underappreciate the value of health insurance. Second, insurance companies may have a strong incentive to reduce quality and to hide these shortcomings in the ne print while attra...

The Survival of the Welfare State

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this a¤ects both private investments and the future distribution of voters. The model features mult...

How a Firm Can Induce Legislators to Adopt a Bad Policy

This paper shows why a majority of legislators may vote for a policy that benefits a firm but harms all legislators. The firm may induce legislators to support the policy by suggesting that it is more likely to invest in a district whose voters or representative support the policy. In equilibrium, no one vote may be decisive, so each legislator who seeks the firm’s investment votes for the poli...