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A Political Winner’s Curse: Why Preventive Policies Pass Parliament so Narrowly

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  • Philipp an de Meulen

    ()

  • Christian Bredemeier

Abstract

Preventive policy measures such as bailouts often pass parliament very narrowly. We present a model of asymmetric information between politicians and voters which rationalizes this narrow parliamentary outcome. A successful preventive policy impedes the verification of its own necessity. When policy intervention is necessary but voters disagree ex-ante, individual politicians have an incentive to loose the vote in parliament in order to be rewarded by voters ex-post. Comfortable vote margins induce incentives to move to the loosing fraction to avoid this winner’s curse. In equilibrium, parliamentary elections over preventive policies are thus likely to end at very narrow margins.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0336.

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Length: 27 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:rwi:repape:0336

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Keywords: Political economy; asymmetric information;

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  1. Daniel Diermeier & Antonio Merlo, 1998. "Government Turnover in Parliamentary Democracies," Discussion Papers 1232, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Christian Schultz, 1998. "Monetary Policy, Delegation and Polarization," Discussion Papers 98-17, University of Copenhagen. Department of Economics.
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  9. Gartner, Manfred, 1996. "Political business cycles when real activity is persistent," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 679-692.
  10. : Christian Schultz, . "Polarization and Inefficient Policies," Discussion Papers 93-16, University of Copenhagen. Department of Economics.
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