Design of reforms with time‐inconsistent voters

• DOI: http://doi.org/10.1111/jpet.12229
• Date: 01 June 2017
• Author: Johanna Möllerström,Jisoo Hwang
• Published date: 01 June 2017

Received: 28 September 2016 Accepted: 13 October 2016

DOI: 10.1111/jpet.12229

ARTICLE

Design of reforms with time-inconsistent voters

Jisoo Hwang1Johanna Möllerström2

1HankukUniversity of Foreign Studies

2GeorgeMason University and Research Insti-

tutefor Industrial Economics

JisooHwang, Department of International Eco-

nomicsand Law, Hankuk University of Foreign

Studies,107 Imun-ro, Dongdaemun-gu, Seoul

02450Korea (jhwang@hufs.ac.kr).

JohannaMöllerström, George Mason Uni-

versity,Fairfax, VA,and Research Institute

forIndustrial Economics, Stockholm, Sweden

(jmollers@gmu.edu).

Wewould like to thank Philippe Aghion, Alberto

Alesina,Raj Chetty, Katie Coffman, Paola Con-

coni,David Laibson, Dani Rodrik, Ken Shepsle,

AndreiShleifer, and the participants at the Polit-

icalEconomy Workshop, the Macro Workshop,

andthe Theory Workshop at Harvard Univer-

sityfor very helpful comments and suggestions.

Hwanggratefully acknowledges research grant

fromHankuk University of Foreign Studies.

Widespread agreement that a political reform is necessary is no

guarantee that it is actually undertaken in a timely manner. There

is often a delay before action is taken and reform packages that

would be most efficient to implement all at once are often done only

gradually. We propose a theoretical model explainingthis behavior

and show that when voters have present-biased, time-inconsistent

preferences, gradualism can arise in equilibrium and be welfare-

enhancing. This is because without the possibility for gradualism,

time-inconsistent voters would delay implementing the reform even

more. Using a citizen candidate model, we allow the agenda setter,

who decides which reform schedule to put to vote, to be endoge-

nously determined. We show that voterswho are aware of their own

timeinconsistency can use the election of the agenda setter as a com-

mitment device and appoint an agent who is more patient than the

median voter in order to avoid full procrastination and to achieve

efficiency-maximizing gradualism.

1INTRODUCTION

The secret of getting things done is to act.

–Dante Alighieri

Have a bias toward action—let’s see something happen now. You can break that big plan into small steps and

take the first step right away.

–Indira Gandhi

Widespread agreement that a political reform is necessary—be it deficit reductions, changes needed to make the

social security system more sustainable, or strengthened environmental protection—is no guarantee that it is actu-

ally undertaken. First, there is often substantial delay before action is taken. Second, evenwhen the reform is finally

initiated, often only gradual steps are taken. Gradual implementations, however, can be inefficient because they are

accompanied by heavieradministrative burdens or cause complementarities between different parts of the reforms to

be lost (Lipton & Sachs, 1990; Murphy,Shleifer, & Vishny,1992).

In this paper, we propose a theoretical model that explains why delayand seemingly inefficient gradualism arise.

The source of delay and gradualism that we investigate is present-biased, time-inconsistent preferences among the

voters, i.e., the voters experience the “human tendency to grab immediater ewardsand to avoid immediate costs in a

Journal of Public Economic Theory 2017; 19: 748–761 wileyonlinelibrary.com/journal/jpet c

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