Advanced Search
MyIDEAS: Login

On the “Faustian” Dynamics of Policy and Political Power

Contents:

Author Info

  • Jinhui Bai
  • Roger Lagunoff

Abstract

This paper examines the Faustian dynamics of policy and power. We posit a general class of dynamic games in which current policies affect the future distribution of political power, resulting in the following “Faustian trade off”: if the current ruler chooses his preferred policy, he then sacrifices future political power; yet if he wants to preserve his future power, he must sacrifice his present policy objectives. The trade-off comes from the fact that the current political ruler/pivotal voter cannot un-couple the direct effect of his policy from its indirect effect on future power. A Policy-endogenous (PE) equilibrium describes this endogenous transfer of power, and the resulting evolution of policy and political power over time. We show that the Faustian trade-off in a PE equilibrium is decomposed into two basic rationales. The political preservation effect induces more tempered policy choices than if one’s policy choice did not affect one’s political fortunes. However, the reformation effect induces “more aggressive” policies in order to exploit the productivity gains from policies chosen by even more aggressive successors. We distinguish between political systems that give rise to monotone Faustian dynamics — political power that progressively evolves toward more fiscally liberal types of leaders, and cyclical Faustian dynamics — political power that oscillates between liberal and conservative types of leaders. In each case, we show that the Faustian trade off moderates the choices of each type of leader. Classification-JEL Codes: C73, C61, D72, H11

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www9.georgetown.edu/faculty/lagunofr/dynam-inconsist7.pdf
Download Restriction: no

Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000001627.

as in new window
Length:
Date of creation: 31 Oct 2007
Date of revision:
Handle: RePEc:cla:levrem:122247000000001627

Contact details of provider:
Web page: http://www.dklevine.com/

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Giuseppe Bertola, 1991. "Factor Shares and Savings in Endogenous Growth," NBER Working Papers 3851, National Bureau of Economic Research, Inc.
  2. Barbera, S. & Maschler, M. & Shalev, J., 2001. "Voting for Voters: A Model of Electoral Evolution," Games and Economic Behavior, Elsevier, vol. 37(1), pages 40-78, October.
  3. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
  4. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  5. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
  6. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
  7. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2004. "Time-Consistent Public Expenditures," Levine's Bibliography 122247000000000652, UCLA Department of Economics.
  8. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 285-313, August.
  9. Daron Acemoglu & James A. Robinson, 2006. "Persistence of Power, Elites and Institutions," NBER Working Papers 12108, National Bureau of Economic Research, Inc.
  10. Mertens, J.-F. & Parthasarathy, T., 1987. "Equilibria for discounted stochastic games," CORE Discussion Papers 1987050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1163-1198, December.
  12. Battaglini, Marco & Coate, Stephen, 2007. "A Dynamic Theory of Public Spending, Taxation and Debt," Working Papers 07-04, Cornell University, Center for Analytic Economics.
  13. Stephen Coate & Marco Battaglini, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," 2005 Meeting Papers 209, Society for Economic Dynamics.
  14. U. Horst & Jose A. Scheinkman, 2010. "Equilibria in Systems of Social Interactions," Levine's Working Paper Archive 506439000000000119, David K. Levine.
  15. Matthias Messner & Mattias K. Polborn, 2004. "Voting on Majority Rules," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 115-132.
  16. MERTENS, Jean-François, . "Stochastic games," CORE Discussion Papers RP -1587, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
  18. B. Douglas Bernheim & Sita Nataraj Slavov, 2007. "A Solution Concept for Majority Rule in Dynamic Settings," Discussion Papers 07-029, Stanford Institute for Economic Policy Research.
  19. Manuel Amador, 2004. "A Political Model Sovereign Debt Repayment," 2004 Meeting Papers 762, Society for Economic Dynamics.
  20. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
  21. Per Krusell & Burhanettin Kuruscu & Anthony A. Smtih, Jr., . "Equilibrium Welfare and Government Policy with Quasi-Geometric Discounting," GSIA Working Papers 2001-06, Carnegie Mellon University, Tepper School of Business.
  22. Kevin Roberts, 1999. "Dynamic voting in clubs," LSE Research Online Documents on Economics 19349, London School of Economics and Political Science, LSE Library.
  23. Curtat, Laurent O., 1996. "Markov Equilibria of Stochastic Games with Complementarities," Games and Economic Behavior, Elsevier, vol. 17(2), pages 177-199, December.
  24. William Jack & Roger Lagunoff, 2005. "Social Conflict and Gradual Political Succession: An Illustrative Model," Levine's Bibliography 784828000000000534, UCLA Department of Economics.
  25. William Jack & Roger Lagunoff, 2003. "Dynamic Enfranchisement," Public Economics 0306002, EconWPA, revised 01 Jul 2003.
  26. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  27. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
  28. AMIR , Rabah, 1995. "Continuous Stochastic Games of Capital Accumulation with Convex Transition," CORE Discussion Papers 1995009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  29. Cervellati, Matteo & Fortunato, Piergiuseppe & Sunde, Uwe, 2006. "Consensual and Conflictual Democratization," IZA Discussion Papers 2225, Institute for the Study of Labor (IZA).
  30. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers 2001-05, Carnegie Mellon University, Tepper School of Business.
  31. Jim Dolmas & Gregory W. Huffman, 1998. "On the political economy of immigration and income redistribution," Working Papers 9804, Federal Reserve Bank of Dallas.
  32. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  33. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The survival of the welfare state," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra.
  34. Sam Peltzman, 1980. "The Growth of Government," University of Chicago - George G. Stigler Center for Study of Economy and State 1, Chicago - Center for Study of Economy and State.
  35. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7), pages 646-656.
  36. Ortega, Francesc, 2005. "Immigration quotas and skill upgrading," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1841-1863, September.
  37. Milesi-Ferretti, Gian Maria & Spolaore, Enrico, 1994. "How cynical can an incumbent be? Strategic policy in a model of government spending," Journal of Public Economics, Elsevier, vol. 55(1), pages 121-140, September.
  38. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  39. Armo Gomes & Philippe Jehiel, 2001. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Penn CARESS Working Papers 76ff153ae29996d16c454e473, Penn Economics Department.
  40. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  41. Egorov, Georgy & Sonin, Konstantin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," CEPR Discussion Papers 5092, C.E.P.R. Discussion Papers.
  42. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
  43. Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
  44. Justman, Moshe & Gradstein, Mark, 1999. "The Industrial Revolution, Political Transition, and the Subsequent Decline in Inequality in 19th-Century Britain," Explorations in Economic History, Elsevier, vol. 36(2), pages 109-127, April.
  45. Bhaskar, V. & Vega-Redondo, Fernando, 2002. "Asynchronous Choice and Markov Equilibria," Journal of Economic Theory, Elsevier, vol. 103(2), pages 334-350, April.
  46. Alessandro Lizzeri & Nicola Persico, 2004. "Why Did the Elites Extend the Suffrage? Democracy and the Scope of Government, With an Application to Britain's "Age of Reform"," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 705-763, May.
  47. Horst, Ulrich, 2005. "Stationary equilibria in discounted stochastic games with weakly interacting players," Games and Economic Behavior, Elsevier, vol. 51(1), pages 83-108, April.
  48. Montrucchio, Luigi, 1987. "Lipschitz continuous policy functions for strongly concave optimization problems," Journal of Mathematical Economics, Elsevier, vol. 16(3), pages 259-273, June.
  49. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March.
  50. Marina Azzimonti Renzo, 2004. "On the dynamic inefficiency of governments," 2004 Meeting Papers 228, Society for Economic Dynamics.
  51. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-30, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Taiji Furusawa & Edwin L.-C. Lai, 2011. "A Theory of Government Procrastination," CESifo Working Paper Series 3680, CESifo Group Munich.
  2. Ruediger Bachmann & Jinhui Bai, 2011. "Public Consumption Over the Business Cycle," NBER Working Papers 17230, National Bureau of Economic Research, Inc.
  3. Ruediger Bachmann & Jinhui Bai, 2010. "Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality," NBER Working Papers 16247, National Bureau of Economic Research, Inc.
  4. Marina Azzimonti, 2011. "Barriers to Investment in Polarized Societies," American Economic Review, American Economic Association, vol. 101(5), pages 2182-2204, August.
  5. Battaglini, Marco, 2014. "A dynamic theory of electoral competition," Theoretical Economics, Econometric Society, vol. 9(2), May.
  6. Evrenk, Haldun, 2011. "Why a clean politician supports dirty politics: A game-theoretical explanation for the persistence of political corruption," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 498-510.
  7. Marina Azzimonti, 2010. "Political ideology as a source of business cycles," 2010 Meeting Papers 647, Society for Economic Dynamics.
  8. Marina Azzimonti, 2012. "The dynamics of public investment under persistent electoral advantag," 2012 Meeting Papers 91, Society for Economic Dynamics.
  9. Messner, Matthias & Polborn, Mattias K., 2012. "The option to wait in collective decisions and optimal majority rules," Journal of Public Economics, Elsevier, vol. 96(5), pages 524-540.
  10. Ruediger Bachmann & Jinhui Bai, 2012. "Online Appendix to "Politico-Economic Inequality and the Comovement of Government Purchases"," Technical Appendices 11-243, Review of Economic Dynamics.
  11. Jean Guillaume Forand & John Duggan, 2013. "Markovian Elections," Working Papers 1305, University of Waterloo, Department of Economics, revised Oct 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cla:levrem:122247000000001627. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.