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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. Hansen, Lars Peter & Sargent, Thomas J., 2005. "Recursive robust estimation and control without commitment," Discussion Paper Series 1: Economic Studies 2005,28, Deutsche Bundesbank, Research Centre.
  2. Leitemo, Kai & Söderström, Ulf, 2004. "Robust Monetary Policy in the New-Keynesian Framework," CEPR Discussion Papers 4805, C.E.P.R. Discussion Papers.
  3. Aragones, Enriqueta & Palfrey, Thomas R., 2002. "Mixed Equilibrium in a Downsian Model with a Favored Candidate," Journal of Economic Theory, Elsevier, vol. 103(1), pages 131-161, March.
  4. Dennis, Richard & Leitemo, Kai & Söderström, Ulf, 2009. "Methods for robust control," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1604-1616, August.
  5. Karantounias, Anastasios G., 2013. "Managing pessimistic expectations and fiscal policy," Theoretical Economics, Econometric Society, vol. 8(1), January.
  6. Aragones, Enriqueta & Palfrey, Thomas R., 2003. "Spatial Competition Between Two Candidates of Different Quality: The Effects of Candidate Ideology and Private Information," Working Papers 1169, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  8. 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.
  9. Joshua Congdon-Hohman & Anil Nathan & Justin Svec, 2013. "Student Uncertainty and Major Choice," Working Papers 1301, College of the Holy Cross, Department of Economics.
  10. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, vol. 75(2), pages 503-536, 03.
  11. 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.
  12. Banks, Jeffrey S., 1990. "A model of electoral competition with incomplete information," Journal of Economic Theory, Elsevier, vol. 50(2), pages 309-325, April.
  13. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2014. "Estimating ambiguity aversion in a portfolio choice experiment," Quantitative Economics, Econometric Society, vol. 5, pages 195-223, 07.
  14. Chahrour, Ryan & Svec, Justin, 2014. "Optimal capital taxation and consumer uncertainty," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 178-198.
  15. Svec, Justin, 2012. "Optimal fiscal policy with robust control," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 349-368.
  16. 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.
  17. Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
  18. 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.
  19. James Enelow & Melvin Hinich, 1989. "A general probabilistic spatial theory of elections," Public Choice, Springer, vol. 61(2), pages 101-113, May.
  20. Peter Bossaerts & Paolo Ghirardato & Serena Guarnaschelli & William R. Zame, 2006. "Ambiguity in Asset Markets: Theory and Experiment," Carlo Alberto Notebooks 27, Collegio Carlo Alberto, revised 2009.
  21. Barillas, Francisco & Hansen, Lars Peter & Sargent, Thomas J., 2009. "Doubts or variability?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2388-2418, November.
  22. Navin Kartik & R. Preston McAfee, 2007. "Signaling Character in Electoral Competition," American Economic Review, American Economic Association, vol. 97(3), pages 852-870, June.
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