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Economic Policy, Model Uncertainty and Elections

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  • Wilko Letterie
  • Otto H. Swank

Abstract

We analyse a game theoretical model in which policy makers have superior knowledge about the working of the economy relative to voters. We show that parties increase their chances of reelection by basing their policies on the model that best fits in with their preferences. Moreover, we show that if parties care much about holding office, they may deliberately base their policies on a model that is electorally attractive, even if this model does not describe the working of the economy correctly. Our paper provides an explanation for the observation that different political parties subscribe to different economic philosophies.

Suggested Citation

  • Wilko Letterie & Otto H. Swank, 1998. "Economic Policy, Model Uncertainty and Elections," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 85-103, March.
    • Handle: RePEc:bla:ecopol:v:10:y:1998:i:1:p:85-103
    DOI: 10.1111/1468-0343.00039
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    Cited by:

    1. Christian Schultz, 2003. "Information, Polarization and Delegation in Democracy," EPRU Working Paper Series 03-16, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    2. Espen R. Moen & Christian Riis, 2010. "Policy Reversal," American Economic Review, American Economic Association, vol. 100(3), pages 1261-1268, June.
    3. Rei S. Sayag & Otto H. Swank, 2012. "What to put on and what to keep off the Table? A Politician's Choice of which Issues to address," Tinbergen Institute Discussion Papers 12-127/VII, Tinbergen Institute.
    4. David Carassus & David Laborde, 2002. "L'impact politique de l'audit de début de mandat : une étude empirique des villes de plus de 20 000 habitants," Post-Print halshs-00584450, HAL.
    5. Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March.
    6. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.

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