Learning and signalling by advisor selection

In this paper we consider a model where a policy maker uses advice in order to (1) obtain information about the consequences of an innovation (information motive) and (2) to support political legitimacy of her decision (persuasion motive). We conduct our analysis in the context of a cheap-talk game with three players: (1) a policy maker, (2) the median voter in parliament or of the electorate and (3) an advisor. The advisor has private information about the consequences of policy. Communication between an advisor and a recipient improves as their preferences are closer aligned. If the preferences of the policy maker and the median voter are different the policy maker faces a trade-off. On the one hand, she wants to gain information to judge whether the innovation is worthwhile. On the other hand, she needs to convince the median voter whether the innovation is desirable.     

Fiscal Planning, Budgeting, and Rebudgeting Using Revenue Semaphores

Revenue forecasts play an important role in the state government budget and policy process. These forecasts are generally reported to executive and legislative leaders as point estimates, with no acknowledgment of their corresponding risk and uncertainty. The revenue semaphores proposed in this article outline procedures by which revenue uncertainty directly influences the planning process. The goal is not to make forecasts more accurate, but to make discussions of budget and revenue alternatives more comprehensive. Explicitly incorporating risk and uncertainty measures into the budgeting process increases the degree of real-time budgeting and reduces some adverse effects of budget revisions after the fiscal year begins. The discussion occurs in the context of budget control, management, and policy making.