Change in Strategic Interaction after Introducing Policy

Abstract

This study investigates the change in the strength of strategic interaction from a policy introduction stage to a mature stage. The bulk of literature confirms the strategic interaction among local governments, but does not consider the change in the strength of strategic interaction. Our hypothesis is that the strength of strategic interaction decreases from a policy introduction stage to a mature stage because uncertainty at the policymaking stage might become weaker as time elapses. We focus on the Japanese long-term care insurance (LTCI) system that was introduced in fiscal year 2000. Our findings suggest that since municipalities should forecast the demand for long-term care and set the premium over a three-year “program management period,” they have a strong incentive to refer to the premium setting of surrounding municipalities. Moreover, the incentive would decrease as periods elapse. The empirical evidence is consistent with our hypothesis that the strength of strategic interaction on LTCI premium setting is gradually reduced from the early stage to the mature stage