Policy Makers, Advisors, and Reputation

Tinbergen Institute Discussion Paper No. TI 2004-037/1

19 Pages Posted: 7 Apr 2004

See all articles by Phongthorn Wrasai

Phongthorn Wrasai

Erasmus University Rotterdam (EUR) - Department of Economics

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Date Written: March 29, 2004

Abstract

When hiring an adviser (he), a policy maker (she) often faces the problem that she has incomplete information about his preferences. Some advisers are good, in the sense that their preferences are closely aligned to the policy maker's preferences, and some advisers are bad. Recently, some scholars have argued that the policy maker's power to replace her adviser induces the adviser to act more in line with the policy maker's interests. The idea is that the adviser's desire to put a stamp on future policy reduces his incentive to manipulate information. This paper shows that the policy maker's power to replace her adviser may harm her. The reason is that this power may have an adverse effect on the behavior of good advisers.

Keywords: Reputation, Signalling, Uncertainty, Policy decision-making

JEL Classification: D78, D82, D83

Suggested Citation

Wrasai, Phongthorn and Swank, Otto H., Policy Makers, Advisors, and Reputation (March 29, 2004). Tinbergen Institute Discussion Paper No. TI 2004-037/1, Available at SSRN: https://ssrn.com/abstract=525382 or http://dx.doi.org/10.2139/ssrn.525382

Phongthorn Wrasai (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 8926 (Phone)

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

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