Model uncertainty and the rationality of economic policy
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This paper examines the process of economic policy-making under conditions of model uncertainty. A median voter model is introduced in which the electorate is uncertain of the policy measures available as well as their respective outcomes and opinion formation is a social process of communication and contagion. Learning from experience is also considered. It is shown that economic policy-making under uncertainty produces novel policy routines, but that a mechanism of efficiently utilising the generated knowledge is missing.
Keywords:Economic policy Model uncertainty Collective beliefs Collective learning
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