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Reform Fatigue

Mar 2016
Working Paper
569
T. Renee Bowen, Jackie M.L. Chan, Oeindrila Dube, Nicholas Lambert
We present a rational theory of reform fatigue. At each instant a politician chooses to divide eort between reforms and the status quo. This choice is modeled as a two-armed bandit problem. Reforms are expected to yield a higher rate of output to the voter than the status quo, conditional on the politician being competent. We interpret competence as the administrative ability to ensure successful implementation of reforms. The politician's competence is unknown ex-ante to both the politician and the voter. In addition the voter is unable to observe the politician's eort on reform, but only observes aggregate output. In equilibrium the voter gives the politician term lengths that depend on the timing of success. The politician experiments with reforms at the beginning of his rst term, but gradually decreases the rate of reforms in the absence of early success. We call this gradual reduction in experimentation reform fatigue. The theory thus predicts that reform fatigue follows a political cycle. We provide empirical evidence of reform fatigue cycles in nancial policies among presidential countries.
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