IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

On the Faustian Dynamics of Policy and Political Power

Listed author(s):
  • Jinhui H. Bai
  • Roger Lagunoff

This paper examines the Faustian dynamics of policy and power. We posit a general class of dynamic games in which current policies affect the future distribution of political power, resulting in the following "Faustian trade-off": if the current ruler chooses his preferred policy, he then sacrifices future political power; yet if he wants to preserve his future power, he must sacrifice his present policy objectives. The trade-off comes from the fact that the current political ruler/pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power. A policy-endogenous (PE) equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time. We show that the Faustian trade-off in a PE equilibrium is decomposed into two basic rationales. The political preservation effect induces more tempered policy choices than if one's policy choice did not affect one's political fortunes. However, the reformation effect induces "more aggressive" policies in order to exploit the productivity gains from policies chosen by even more aggressive successors. We distinguish between political systems that give rise to monotone Faustian dynamics--political power that progressively evolves towards more fiscally liberal types of leaders--and cyclical Faustian dynamics--political power that oscillates between liberal and conservative types of leaders. In each case, we show that the Faustian trade-off moderates the choices of each type of leader. Copyright 2011, Oxford University Press.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1093/restud/rdq022
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 78 (2011)
Issue (Month): 1 ()
Pages: 17-48

as
in new window

Handle: RePEc:oup:restud:v:78:y:2011:i:1:p:17-48
Contact details of provider:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
  2. Bhaskar, V. & Vega-Redondo, Fernando, 2002. "Asynchronous Choice and Markov Equilibria," Journal of Economic Theory, Elsevier, vol. 103(2), pages 334-350, April.
  3. Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January.
  4. Armando Gomes & Philippe Jehiel, 2005. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 626-667, June.
  5. Marco Battaglini & Stephen Coate, 2007. "Inefficiency in Legislative Policymaking: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 97(1), pages 118-149, March.
  6. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 646-656, August.
  7. MERTENS, Jean-François & PARTHASARATHY, T., "undated". "Equilibria for discounted stochastic games," CORE Discussion Papers RP 1666, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
  9. Jack, William & Lagunoff, Roger, 2006. "Dynamic enfranchisement," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 551-572, May.
  10. Krusell, Per & Kuruscu, Burhanettin & Smith, Anthony Jr., 2002. "Equilibrium Welfare and Government Policy with Quasi-geometric Discounting," Journal of Economic Theory, Elsevier, vol. 105(1), pages 42-72, July.
  11. Justman, Moshe & Gradstein, Mark, 1999. "The Industrial Revolution, Political Transition, and the Subsequent Decline in Inequality in 19th-Century Britain," Explorations in Economic History, Elsevier, vol. 36(2), pages 109-127, April.
  12. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
  13. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  14. Matthias Messner & Mattias K. Polborn, 2004. "Voting on Majority Rules," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 115-132.
  15. Horst, Ulrich & Scheinkman, Jose A., 2006. "Equilibria in systems of social interactions," Journal of Economic Theory, Elsevier, vol. 130(1), pages 44-77, September.
  16. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
  17. Roberts, Kevin, 2015. "Dynamic voting in clubs," Research in Economics, Elsevier, vol. 69(3), pages 320-335.
  18. B. D. Bernheim & S. N. Slavov, 2009. "A Solution Concept for Majority Rule in Dynamic Settings," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 33-62.
  19. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2004. "Time-Consistent Public Expenditures," Levine's Bibliography 122247000000000652, UCLA Department of Economics.
  20. Barbera, S. & Maschler, M. & Shalev, J., 2001. "Voting for Voters: A Model of Electoral Evolution," Games and Economic Behavior, Elsevier, vol. 37(1), pages 40-78, October.
  21. Marina Azzimonti Renzo, 2004. "On the dynamic inefficiency of governments," 2004 Meeting Papers 228, Society for Economic Dynamics.
  22. Montrucchio, Luigi, 1987. "Lipschitz continuous policy functions for strongly concave optimization problems," Journal of Mathematical Economics, Elsevier, vol. 16(3), pages 259-273, June.
  23. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
  24. Ortega, Francesc, 2005. "Immigration quotas and skill upgrading," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1841-1863, September.
  25. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  26. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-957, July.
  27. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
  28. Cervellati Matteo & Fortunato Piergiuseppe & Sunde Uwe, 2012. "Consensual and Conflictual Democratization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-51, December.
  29. Daron Acemoglu & James A. Robinson, 2000. "Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1167-1199.
  30. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-293, March.
  31. Amir, Rabah, 1996. "Continuous Stochastic Games of Capital Accumulation with Convex Transitions," Games and Economic Behavior, Elsevier, vol. 15(2), pages 111-131, August.
  32. William Jack & Roger Lagunoff, 2006. "Social Conflict and Gradual Political Succession: An Illustrative Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 703-725, December.
  33. Mertens, Jean-Francois, 2002. "Stochastic games," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 47, pages 1809-1832 Elsevier.
  34. Egorov, Georgy & Sonin, Konstantin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," CEPR Discussion Papers 5092, C.E.P.R. Discussion Papers.
  35. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 285-313, August.
  36. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-287, October.
  37. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November.
  38. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, November.
  39. Manuel Amador, 2004. "A Political Model Sovereign Debt Repayment," 2004 Meeting Papers 762, Society for Economic Dynamics.
  40. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
  41. Milesi-Ferretti, Gian Maria & Spolaore, Enrico, 1994. "How cynical can an incumbent be? Strategic policy in a model of government spending," Journal of Public Economics, Elsevier, vol. 55(1), pages 121-140, September.
  42. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  43. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
  44. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-156, March.
  45. Horst, Ulrich, 2005. "Stationary equilibria in discounted stochastic games with weakly interacting players," Games and Economic Behavior, Elsevier, vol. 51(1), pages 83-108, April.
  46. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
  47. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-330, March.
  48. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1163-1198, December.
  49. Curtat, Laurent O., 1996. "Markov Equilibria of Stochastic Games with Complementarities," Games and Economic Behavior, Elsevier, vol. 17(2), pages 177-199, December.
  50. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  51. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:78:y:2011:i:1:p:17-48. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.