Choosing Leaders: Learning from Past Decisions in a Changing Environment

Andrea Mattozzi (European University Institute) 

Riccardo Faini CEIS Seminars

Riccardo Faini CEIS Seminars
When

Friday, November 11, 2011 h. 12:00-13:30

Where
Aula B - Primo piano
Description

An incumbent executive has both policy and career concerns. The optimal policy in each period evolves according to a Markov process, and the executive observes imperfect signals in each period. A voter observes the executive's decisions and chooses whether or not to reappoint the executive to office. We show that with a small amount of transparency about the outcomes of the executive's decisions in office, if his tenure is long enough (i) the voter appoints good types and fi res bad types with probability close to one, and (ii) the executive chooses policy as if he had no career concerns (implying efficiency when he has the same preferences as the voter). We also show that in this case consistent records are indicative of ability when past information depreciates sufficiently fast, but that this is not true in general.

 

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