(Dis)honest politicians and the value of transparency for campaign promises

Promises are prevalent in many economic environments. They offer the opportunity to honor future obligations when promise keeping is observable. This paper studies the value of transparency and asks whether promises still work if such transparency is missing. We focus on the context of campaign promises where institutional environments, for example, quality of the media, may determine whether voters observe promise keeping. Building on recent evidence about preferences for truth-telling, we show how lying costs shape promise competition when promise keeping can(not) be observed. We identify the causal effects of opacity in a laboratory experiment and find that opacity leads to more generous promises, but also to more promise breaking. Nonetheless, with opacity, elected officials do appropriate similar rents as in transparent institutions. Preferences for truth-telling and (instrumental) reputational concerns explain these findings and shape the value of transparency.