Adverse Selection in Agenda Setting

Abstract

Adverse Selection in Agenda-Setting studies the costs and benefits of flexibility in designing government policies. It argues that adverse selection is a key problem in these settings: an individual who proposes a reform typically knows more about its effects than the ones who must approve or reject that reform. Increasing the proposer’s freedom to design the reform can exacerbate this adverse selection problem. If the proposer has a lot of freedom, then gridlock can result: the reform is always rejected in equilibrium. The paper argues that certain types of oversight can mitigate this adverse selection problem, lead the proposer to moderate her proposed reform, and break the resulting gridlock.