Electoral Competition with Costly Policy Changes: A Dynamic Perspective

93 Pages Posted: 16 Jun 2020

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Philippe Muller

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Oriol Tejada

Universitat de Barcelona

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

Abstract

We analyze dynamic electoral competition policy changes. The costs of changing a policy increase with the extent of the shift and generate an incumbency advantage. We characterize the dynamics of Markov equilibria in terms of history and party polarization, and analyze how policies are influenced by the amplitude and convexity of costs of change, as well as by the degree of party and voter farsightedness. Regardless of the initial policy, party choices converge in the long run to a stochastic alternation between two (regions of) policies, with transitions occurring when office-holders suffer a shock to their capacity or valence. Although costs of change have a moderating effect on policies, full convergence to the median voter position does not take place.

Keywords: costs of change, democracy, dynamic elections, Markov perfect equilibrium, Political Polarization

JEL Classification: C72, C73, D72, D78

Suggested Citation

Gersbach, Hans and Jackson, Matthew O. and Muller, Philippe and Tejada, Oriol, Electoral Competition with Costly Policy Changes: A Dynamic Perspective (June 2020). CEPR Discussion Paper No. DP14858, Available at SSRN: https://ssrn.com/abstract=3628178

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Research ( email )

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IZA Institute of Labor Economics

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CESifo (Center for Economic Studies and Ifo Institute)

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Matthew O. Jackson

Stanford University - Department of Economics ( email )

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Santa Fe Institute

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Philippe Muller

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

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Zurich, 8092
Switzerland

Oriol Tejada

Universitat de Barcelona ( email )

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Barcelona, Barcelona 08007
Spain

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