A Dynamic Duverger's Law

Electoral systems promote strategic voting and affect party systems. Duverger (1951) proposed that plurality rule leads to bi-partyism and proportional representation leads to multi-partyism. We show that in a dynamic setting, these static effects also lead to a higher option value for existing minor parties under plurality rule, so their incentive to exit the party system is mitigated by their future benefits from continued participation. The predictions of our model are consistent with multiple cross-sectional predictions on the comparative number of parties under plurality rule and proportional representation. In particular, there could be more parties under plurality rule than under proportional representation at any point in time. However, our model makes a unique time-series prediction: the number of parties under plurality rule should be less variable than under proportional representation. We provide extensive empirical evidence in support of these results.