Working Paper: CEPR ID: DP17556
Authors: Dana Foarta; Steven Callander; Takuo Sugaya
Abstract: Policy outcomes are determined not by the words in a statute but by the actions induced in response. Whether a policy succeeds or fails depends on how policy shapes behavior and how that behavior, in turn, shapes the future course of policy. To understand this process, we develop a model that explicitly combines the political and non-political domains, focusing on competition policy and the regulation of markets.We show how the outcome of a change in policy develops over time as firms respond in the market and interact with bureaucratic enforcement. We identify a critical threshold in market structure that determines whether a policy succeeds or fails, and discusshow the design of political institutions can affect this level. The threshold represents a balancing of the path-dependence of politics with the self-correcting nature of markets. It establishes when political forces dominate those in markets and, thus, when a policychange will have a lasting effect on society.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy enactment (I18) | market behavior (D40) |
| market conditions (P42) | policy effectiveness (D78) |
| market response (D49) | policy efficacy (I38) |
| policy changes (J18) | new market behaviors (D26) |