Dynamic Campaign Spending

We build a model of electoral campaigning in which two office-motivated candidates each allocate their budgets over time to affect their relative popularity, which evolves as a mean-reverting stochastic process. We show that in each period, the equilibrium ratio of spending by each candidate equals the ratio of their available budgets. This result holds across different specifications and extensions of the model, including extensions that allow for early voting, and an endogenous budget process. We also characterize how the path of spending over time depends not just on the rate of decay of popularity leads, but also the rate at which returns to spending are diminishing, rates of participation in early voting, and any feedback that short run leads in popularity have on the budget process.