Politician's Reputation and Policy (Un)persistence

We consider a political career concern model where politicians differ in their information on the states of the world in different periods and the outcome of a policy in different periods depends on the same state of the world. We show that a politician may continue to implement the past policy even when a policy change would be socially preferable (perverse policy persistence): changing his mind would indeed damage his reputation, and so reduce his probability of being reelected. Under the standard assumption that once ousted from office a politician cannot run again for election, the old politician is never reelected (incumbency disadvantage). However, when there is a positive probability that a politician who was ousted from office in the past will stand for reelection in the future, reputational concern may induce a new politician not to continue the policy introduced by another politician even when this is not socially desirable (perverse policy unpersistence): confirming a previous decision made by another politician would indeed improve the reputation of a potential rival in the next elections, and so reduce his probability of being reelected. When equilibrium exhibits policy persistence by the incumbent politician and policy unpersistence by the new politician, the voters' choice between the two politicians is actually a choice between changing or not changing the policy introduced in the previous period. Since politicians have policy expertise, voters believe that the initial policy is more likely to be the optimal one, and so they reelect the candidate who implemented it, i.e., the incumbent politician (incumbency advantage).