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In uncertainty we trust: a median voter model with risk aversion

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Author Info

  • Pavel A. Yakovlev

    (Duquesne University, Department of Economics and Quantitative Sciences, Pittsburgh)

Abstract

The principal-agent problem and uncertainty are some of the key factors affecting financial and political markets. Fear of the unknown plays an important role in human decision making, including voting. This article describes a theoretical model where voter risk aversion towards uncertainty gives political incumbents a significant advantage over their challengers, exacerbating the principal-agent problem between voters and legislators. The model presented predicts that a rise in voter uncertainty concerning the challenger allows the incumbent to deviate from the median voter’s policy preference without losing the election. This model reconciles the paradoxical coexistence of ideological shirking and high incumbent reelection rates without abandoning the elegant median voter framework.

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Bibliographic Info

Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

Volume (Year): 35 (2011)
Issue (Month): 4 ()
Pages: 465-477

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Handle: RePEc:ipf:finteo:v:35:y:2011:i:4:p:465-477

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Related research

Keywords: ideology; incumbency advantage; shirking; median voter; risk aversion; principal-agent problem;

References

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  1. Parker, Glenn R & Powers, Stephen C, 2002. " Searching for Symptoms of Political Shirking: Congressional Foreign Travel," Public Choice, Springer, vol. 110(1-2), pages 173-91, January.
  2. Kalt, Joseph P & Zupan, Mark A, 1984. "Capture and Ideology in the Economic Theory of Politics," American Economic Review, American Economic Association, vol. 74(3), pages 279-300, June.
  3. Paulo Reis Mourao, 2008. "Towards a Puviani’s Fiscal Illusion Index," Hacienda Pública Española, IEF, vol. 187(4), pages 49-86, December.
  4. Bender, Bruce & Lott, John R, Jr, 1996. " Legislator Voting and Shirking: A Critical Review of the Literature," Public Choice, Springer, vol. 87(1-2), pages 67-100, April.
  5. Biglaiser, Gary & Mezzetti, Claudio, 1997. "Politicians' decision making with re-election concerns," Journal of Public Economics, Elsevier, vol. 66(3), pages 425-447, December.
  6. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
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Cited by:
  1. Yakovlev, Pavel & Tosun, Mehmet S. & Lewis, William P., 2012. "Legislative Term Limits and State Aid to Local Governments," IZA Discussion Papers 6456, Institute for the Study of Labor (IZA).

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