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Inefficient Policies and Incumbency Advantage

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  • Roland Hodler
  • Simon Loertscher
  • Dominic Rohner

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 ine±cient 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 The University of Melbourne in its series Department of Economics - Working Papers Series with number 996.

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Length: 46 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mlb:wpaper:996

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Keywords: Elections; Incumbency Advantage; Political Economics;

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References

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Citations

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Cited by:
  1. Roland Hodler & Simon Loertscher & Dominic Rohner, 2007. "False Alarm? Terror Alerts and Reelection," Department of Economics - Working Papers Series 995, The University of Melbourne.
  2. Roland Hodler & Simon Loertscher & Dominic Rohner, 2010. "Biased Experts, Costly Lies, and Binary Decisions," Working Papers 10.01, Swiss National Bank, Study Center Gerzensee.
  3. Elena Manzoni & Stefan P. Penczynski, 2013. "Last minute policies and the incumbency advantage," Working Papers 229, University of Milano-Bicocca, Department of Economics, revised Jan 2013.
  4. Jo Thori Lind & Dominic Rohner, 2011. "Knowledge is Power - A Theory of Information, Income, and Welfare Spending," CESifo Working Paper Series 3613, CESifo Group Munich.
  5. Roland Hodler, 2011. "Elections and the strategic use of budget deficits," Public Choice, Springer, vol. 148(1), pages 149-161, July.
  6. Mark Schelker, 2011. "Lame Ducks and Divided Government: How Voters Control the Unaccountable," CESifo Working Paper Series 3523, CESifo Group Munich.

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