Moral Hazard or Rational Choice? Korean Local governments’ Negativity Bias and Blame Avoidance Behavior in Retrenchment Policy


Eunmi Lee

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This study investigates how negativity bias and blame avoidance appear in the context of retrenchment policy. It mainly analyzes local subsidy incentives applied to metropolitan cities. Incentive items are five reductions of labor cost, local councils, business expense, festival events cost, and private transfer expenditure. In order to analyze the political and economic context in the determinants of each item, the causal conditions are examined on the politics of local elections and the chief of local government, financial independence, the increased amount of capital expenditure per resident, and the rate of growth regional domestic product by using fuzzy set Qualitative Comparative Analysis(fsQCA). The results show local governments have behavior of negativity bias and blame avoidance not to actively employ the policies if the cost belongs to the residents in spite of incentives. In particular, in the case of private transfer expenditure, they show the aspect to prevent the loss of local residents rather than the economic interests of the central government. They choose retrenchment policy when there are no local elections or economic condition is good to mitigate and escape the blame. Also, blame avoidance and negativity bias appear in regardless of the political propensity of the chief of local government. This study is characterized in that raises the need for retrenchment policy and demonstrate behaviors of the relevant local governments unlike previous studies that assume expansion policy. In addition, there is a meaning that it provides logic to explain the blame avoidance and the status quo behaviors of the local governments.


Ⅰ. Introduction
Ⅱ. Theoretical Background on Negativity Bias and Blame Avoidance
Ⅲ. Data and Methods
1. Proposition
2. Methods and Variables
Ⅳ. Results
1. Descriptive Analysis
2. fuzzy set Analysis Result
Ⅴ. Results and Implications


  • Eunmi Lee College of General Education, Kookmin University


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