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A Reputational Theory of Two Party Competition

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Author Info
Tasos Kalandrakis () (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)

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Abstract

We propose a reputational theory of two-party competition. We model the interaction of parties and the electorate as a stochastic game of incomplete information. The parties’ preferred policies (moderate or extreme) are possibly revealed to the electorate only via their policy choices while in government, and partisan preferences change with positive probability following defeat in elections. Due to inertia within party organizations, party preferences display positive serial correlation. When partisans care sufficiently about office, extreme policies are pursued with positive probability by the government only when the ruling party is perceived relatively more extreme than the opposition. In equilibrium such policies occur when (a) both parties are perceived to be more extreme than a long-run benchmark level, and (b) neither party holds a significant advantage regarding its perceived extremism by the electorate. Equilibrium dynamics produce two qualitatively different adjustment paths: one exhibits polarized politics such that there is positive probability of non-moderate policies in the future for a protracted period of time; the other possible adjustment path produces moderation with probability one in all periods. Both adjustment paths are such that one of the two parties (possibly different over time) may win successive elections with high probability in equilibrium.

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File URL: http://www.wallis.rochester.edu/WallisPapers/wallis_41.pdf
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Publisher Info
Paper provided by University of Rochester - Wallis Institute of Political Economy in its series Wallis Working Papers with number WP41.

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Length: 45 pages
Date of creation: Aug 2006
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Handle: RePEc:roc:wallis:wp41

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Postal: UNIVERSITY OF ROCHESTER, Wallis Institute, HARKNESS 109B ROCHESTER NEW YORK 14627 U.S.A.

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Keywords: Parliamentary Dynamics Reputation Westminster.

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  1. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
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  3. George J. Mailath & Larry Samuelson, . ""Who Wants a Good Reputation?''," CARESS Working Papres 98-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  4. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June. [Downloadable!] (restricted)
  5. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Aragones, Enriqueta & Palfrey, Thomas R., 2003. "Spatial Competition Between Two Candidates of Different Quality: The Effects of Candidate Ideology and Private Information," Working Papers 1169, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  7. Bernhardt, Dan & Dubey, Sangita & Hughson, Eric, 2004. "Term limits and pork barrel politics," Journal of Public Economics, Elsevier, vol. 88(12), pages 2383-2422, December. [Downloadable!] (restricted)
  8. John Duggan, . "Repeated Elections with Asymmetric Information," Wallis Working Papers WP9, University of Rochester - Wallis Institute of Political Economy.
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  9. Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, vol. 78(4), pages 496-805, September.
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