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Inefficient Policies and Incumbency Advantage

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  • Hodler, R.
  • Loertscher , S.
  • Rohner, D.

Abstract

We study incumbency advantage in a dynamic game with incomplete information between an incumbent and a voter. The incumbent knows the true state of the world, e.g., the severity of an economic recession or the level of criminal activities, and can choose the quality of his policy. This quality and the state of the world determine the policy outcome, i.e., the economic growth rate or the number of crimes committed. The voter only observes the policy outcome and then decides whether to reelect the incumbent or not. Her preferences are such that she would reelect the incumbent under full information if and only if the state of the world is above a given threshold level. In equilibrium, the incumbent is reelected in more states of the world than he would be under full information. In particular, he chooses ine±cient policies and generates mediocre policy outcomes whenever the voter's induced belief distribution will be such that her expected utility of reelecting the incumbent exceeds her expected utility of electing the opposition candidate. Hence, there is an incumbency advantage through ineficient policies. We provide empirical evidence consistent with the prediction that reelection concerns may induce incumbents to generate mediocre outcomes.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0738.

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Length: 24
Date of creation: May 2007
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Handle: RePEc:cam:camdae:0738

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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Elections; Incumbency Advantage; Political Economics.;

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Citations

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Cited by:
  1. Roland Hodler & Simon Loertscher & Dominic Rohner, 2010. "Biased experts, costly lies, and binary decisions," IEW - Working Papers 496, Institute for Empirical Research in Economics - University of Zurich.
  2. Mark Schelker, 2011. "Lame Ducks and Divided Government: How Voters Control the Unaccountable," CESifo Working Paper Series 3523, CESifo Group Munich.
  3. Roland Hodler, 2011. "Elections and the strategic use of budget deficits," Public Choice, Springer, Springer, vol. 148(1), pages 149-161, July.
  4. Lind, J.T. & Rohner, D., 2011. "Knowledge is power: A theory of information, income and welfare spending," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1161, Faculty of Economics, University of Cambridge.
  5. Elena Manzoni & Stefan P. Penczynski, 2013. "Last minute policies and the incumbency advantage," Working Papers, University of Milano-Bicocca, Department of Economics 229, University of Milano-Bicocca, Department of Economics, revised Jan 2013.
  6. Roland Hodler & Simon Loertscher & Dominic Rohner, 2007. "False Alarm? Terror Alerts and Reelection," Department of Economics - Working Papers Series, The University of Melbourne 995, The University of Melbourne.

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