DP14858 Electoral Competition with Costly Policy Changes: A Dynamic Perspective

Author(s): Hans Gersbach, Matthew O. Jackson, Philippe Muller, Oriol Tejada
Publication Date: June 2020
Keyword(s): costs of change, democracy, dynamic elections, Markov perfect equilibrium, Political Polarization
JEL(s): C72, C73, D72, D78
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14858

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.