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A Reputational Theory of Two Party Competition

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Abstract

We study a dynamic game of incomplete information in which two political parties contest elections with endogenously formed reputations regarding the preferences that prevail within each party. Party preferences exhibit serial correlation and change with higher probability following defeat in elections. We show that when partisans care sufficiently about office, extreme policies are pursued with positive probability by the government if 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 fixed benchmark level, and (b) elections are close in that both parties have similar reputations. Two qualitatively different equilibrium dynamics are possible depending on the relative speed with which preferences of parties in government or in the opposition change: One produces regular government turnover and extreme policies along the path of play, another involves a strong incumbency advantage and policy moderation.

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Paper provided by University of Rochester - Wallis Institute of Political Economy in its series Wallis Working Papers with number WP57.

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Length: 44 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:roc:wallis:wp57

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Postal: University of Rochester, Wallis Institute, Harkness 109B Rochester, New York 14627 U.S.A.

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  1. 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.
  2. John Duggan & Mark Fey, 2006. "Repeated Downsian electoral competition," International Journal of Game Theory, Springer, vol. 35(1), pages 39-69, December.
  3. John Duggan, . "Repeated Elections with Asymmetric Information," Wallis Working Papers WP9, University of Rochester - Wallis Institute of Political Economy.
  4. Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
  5. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  6. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
  7. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477.
  8. 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.
  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 796-805, September.
  10. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  11. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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Cited by:
  1. Jean Guillaume Forand, 2010. "Two-Party Competition with Persistent Policies," Working Papers 1011, University of Waterloo, Department of Economics, revised Nov 2010.
  2. Tasos Kalandrakis & Arthur Spirling, 2009. "Radical Moderation: Recapturing Power in Two-party Parliamentary Systems," Wallis Working Papers WP61, University of Rochester - Wallis Institute of Political Economy.

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