Abstract

How do career concerns affect the decision-making of public officials? In this paper, we study this problem in the context of the Federal Open Market Committee (FOMC). To tackle this problem, we combine a structural approach with an unanticipated change in the information available to the public about internal committee deliberations. Exploiting the regime change and the restrictions on behavior implied by the equilibrium of the model, we (i) estimate the intrinsic value that FOMC members give to reputation, (ii) clarify the distortions in behavior induced by career concerns, (iii) quantify the probability of correct recommendations, and (iv) assess the performance of the FOMC under committee compositions and economic conditions not observed in the data. While the conventional wisdom suggests that Transparency can be detrimental to welfare by inducing anti-pandering and conformism, our results challenge this view. We show that career concerns have significant effect on equilibrium outcomes, but that the dominant effect of career concerns is to moderate biases, in order to mimic expert behavior. This counteracts heterogeneity in preferences, and can lead to improvements in welfare, even in spite of increased conformity for some committee members.


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