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American Economic Review: Vol. 100 No. 3 (June 2010)

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Policy Reversal

Article Citation

Moen, Espen R., and Christian Riis. 2010. "Policy Reversal." American Economic Review, 100(3): 1261-68.

DOI: 10.1257/aer.100.3.1261

Abstract

We analyze the existence of policy reversal, the phenomenon sometimes observed that a certain policy (say extreme left-wing) is implemented by the "unlikely" (right-wing) party. We formulate a Downsian signaling model where the incumbent government, through its choice of policy, reveals information both regarding own preferences and external circumstances that may call for a particular policy. We show that policy reversal may indeed exist as an equilibrium phenomenon. This is partly because the incumbent party has superior opportunities to reveal information, and partly because its reputation protects a left-wing incumbent when advertising a right-wing policy.

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Authors

Moen, Espen R. (Norwegian School of Management)
Riis, Christian (Norwegian School of Management)

JEL Classifications

D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D82: Asymmetric and Private Information


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