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The Impact of Political Uncertainty: A Robust Control Approach

  • Robert Baumann

    ()

    (Department of Economics, College of the Holy Cross)

  • Justin Svec

    ()

    (Department of Economics, College of the Holy Cross)

In this paper, we examine how candidate uncertainty affects the policy platforms chosen in a uni-dimensional, two candidate Downsian spatial model. The candidates, we assume, do not know the true distribution of voters. Following the robust control literature, candidates respond to this uncertainty by applying a max-min operator to their optimization problem. This approach, consistent with findings within the behavioral economics literature, protects the candidate by ensuring that her expected utility never falls too far, regardless of the true voter distribution. We show that this framework produces policy convergence between the two candidates but there is a multiplicity of possible policy platforms upon which the candidates could settle, some of which could be quite distant from the median voter. These results are robust to the timing of the game and the level of uncertainty faced by the candidates. We argue that our model explains drift, which is our term for changing political beliefs over time. While drift may be caused by shifting attitudes or demographics, we show that drift could also be the result of candidate uncertainty.

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File URL: http://college.holycross.edu/RePEc/hcx/Baumann-Svec_PoliticalUncertainty.pdf
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Paper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 1306.

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Length: 27 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:hcx:wpaper:1306
Contact details of provider: Phone: (508)793-3362
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Web page: http://www.holycross.edu/departments/economics/website/

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  1. Richard Dennis & Kai Leitemo & Ulf Söderström, 2006. "Methods for robust control," Working Paper Series 2006-10, Federal Reserve Bank of San Francisco.
  2. Aragones, Enriqueta & Palfrey, Thomas. R., 2000. "Mixed Equilibrium in a Downsian Model With a Favored Candidate," Working Papers 1102, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Andrew T. Levin & John C. Williams, 2003. "Robust monetary policy with competing reference models," Working Paper Series 2003-10, Federal Reserve Bank of San Francisco.
  4. Kai Leitemo & Ulf Soderstrom, 2004. "Robust Monetary Policy in the New-Keynesian Framework," Working Papers 273, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Barillas, Francisco & Hansen, Lars Peter & Sargent, Thomas J., 2009. "Doubts or variability?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2388-2418, November.
  6. Joshua Congdon-Hohman & Anil Nathan & Justin Svec, 2013. "Student Uncertainty and Major Choice," Working Papers 1301, College of the Holy Cross, Department of Economics.
  7. Peter Bossaerts & Paolo Ghirardato & Serena Guarnaschelli & William R. Zame, 2010. "Ambiguity in Asset Markets: Theory and Experiment," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1325-1359, April.
  8. Navin Kartik & R. Preston McAfee, 2007. "Signaling Character in Electoral Competition," American Economic Review, American Economic Association, vol. 97(3), pages 852-870, June.
  9. Hansen, Lars Peter & Sargent, Thomas J., 2007. "Recursive robust estimation and control without commitment," Journal of Economic Theory, Elsevier, vol. 136(1), pages 1-27, September.
  10. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
  11. Karantounias, Anastasios G., 2013. "Managing pessimistic expectations and fiscal policy," Theoretical Economics, Econometric Society, vol. 8(1), January.
  12. Enriqueta Aragones & Thomas R. Palfrey, 2003. "Spatial Competition Between Two Candidates of Different Quality: The Effects of Candidate Ideology and Private Information," UFAE and IAE Working Papers 573.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  14. Halevy, Yoram, 2005. "Ellsberg Revisited: an Experimental Study," Microeconomics.ca working papers halevy-05-07-26-11-51-13, Vancouver School of Economics, revised 25 Feb 2014.
  15. Hansen, Lars Peter & Sargent, Thomas J., 2005. "Robust estimation and control under commitment," Journal of Economic Theory, Elsevier, vol. 124(2), pages 258-301, October.
  16. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2008. "Estimating Ambiguity Aversion in a Portfolio Choice Experiment," Levine's Working Paper Archive 122247000000001989, David K. Levine.
  17. Banks, Jeffrey S., 1990. "A model of electoral competition with incomplete information," Journal of Economic Theory, Elsevier, vol. 50(2), pages 309-325, April.
  18. Justin Svec, 2011. "Optimal Capital Taxation and Consumer Uncertainty," Working Papers 1108, College of the Holy Cross, Department of Economics.
  19. Svec, Justin, 2012. "Optimal fiscal policy with robust control," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 349-368.
  20. Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
  21. Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
  22. James Enelow & Melvin Hinich, 1989. "A general probabilistic spatial theory of elections," Public Choice, Springer, vol. 61(2), pages 101-113, May.
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