Microeconomics (SEMINARS)

Abstract: We model a novel inefficiency that emerges when two actors jointly choose a policy reform. The tension is that one of these actors, the proposer, is better informed about which reforms are viable and their payoffs than the other actor, the respondent. Although many policies may make both parties better off (relative to the status quo), the respondent rejects with high probability whenever the set of policies is sufficiently rich. The key force is that the respondent fears that the policy has been cherry picked. We study the extent to which the parties can escape the cherry-picking trap through better information for the respondent as well as by having the proposer offering a menu of choices to the respondent.