DP3884 Are we Better Off if our Politicians Have More Information?

Author(s): Johan N.M. Lagerlöf

Publication Date: May 2003

Keyword(s): public information acquisition , value of information , welfare , interest groups , informational lobbying , strategic delegation

JEL(s): D78

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP3884.asp

This Paper studies a model of public policy with heterogeneous citizens/voters and two public goods: one (roads) is chosen directly by an elected policy-maker, and the other (pollution) depends stochastically on the amount of roads. Both a one-country and a two-country version of the model are analysed, the latter displaying externalities across the countries, which creates incentives for free-riding and strategic delegation. The welfare effects of providing the policy-maker with information about the relationship between roads and pollution are investigated, and it is shown that more information hurts some – sometimes even all – citizens. In particular, the opportunity not to build an institution for information gathering can serve as a commitment device for a country, although with the unfortunate effect of making the overall outcome even worse. Implications for the welfare effects of ‘informational lobbying’ are discussed.