Dynamics of Policymaking: Stepping Back to Leap Forward, Stepping Forward to Keep Back

We study a model of dynamic policy-making with three distinct features. First, policy agreements made today persist until they are replaced with a new agreement. Second, agents take into account the dynamic consequences of today’s policies for future policy-making opportunities. Third, there is uncertainty about who will hold political power to propose and to veto policy changes in the future. We study the optimal reform agenda of agents who face such an environment and who either favor or oppose long-run reform vis-à-vis an initial status quo. We characterize when today’s agendasetter holds back from fully exploiting present opportunities to move policy toward her long-run ideal. When there is a high chance that tomorrow’s proposer and veto player are aligned in favor of long-term reform, an agenda-setter who is hostile to long-term reform may even implement more reform in the short-term than an agenda-setter who favors long-term reform. Optimal proposals vary both continuously or discontinuously and possibly non-monotonically with changes in agents’ uncertainty, ideological tastes and patience. In addition to the threat of losing future political power, we uncover circumstances in which the prospect of retaining power serves as an equally powerful motivation for agents to hold back from fully exploiting their immediate opportunities to change policy. We thank B̊ard Harstad, Niall Hughes, Gilat Levy, Stephane Wolton, and seminar audiences at Bristol, the LSE, Chicago and Nottingham for helpful comments and suggestions. Department of Economics, University of Warwick, Email : [email protected] Department of Economics, University of Illinois, Email : [email protected] Preprint submitted to tbc April 13, 2015