Costs of change and political polarization

We study a two-period model of policy-making where (i) changes of current policies impose costs on all individuals that increase linearly with the magnitude of the policy shift and (ii) political power changes over time. We show that policy polarization is minimal for intermediate marginal costs. In turn, welfare is a single-peaked function of the marginal cost. One interpretation is that societies with political institutions that impose positive but moderate costs on political reforms simultaneously achieve the highest welfare and the lowest policy polarization.