DP18382 Shaking Up the System: When Populism Disciplines Elite Politicians
This paper presents a rational theory of populism using a moral hazard model of policymaking, and shows that rational voters may support populists despite their lack of competence. Our model features an incumbent elite politician who is both office-motivated and policy-motivated, and has policy preferences that deviate from voters' preferences in some states of the world. The voters' problem is to motivate the better informed incumbent to implement their preferred policy. The optimal retention strategy depends on the policy implemented by the incumbent in the previous period and its perceived success, and involves differentiated punishment for a failing incumbent, by electing either another elite politician or a populist. Our analysis provides insight into how political complexity, establishment party polarization, fake news, and politician pay are linked to the populist vote.
