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Polarization and Inefficient Policies

  • : Christian Schultz

    (Institute of Economics, University of Copenhagen)

Two parties have different goals. Voters, but not parties, are uncertain about the functioning of the economy, in this case the costs of producing a public good. The parties each propose a policy, an election is held and the policy of the winning party is implemented. Voters and parties care about the level of the public good and costs. Two kinds of sequential equilibria exist; revealing, where voters learn the true costs and the implemented policy adjusts to costs, and non-revealing. If parties' preferences are polarized, only non-revealing equilibria fulfill a refinement criterion like the intuitive criterion. If they are alike, only revealing equilibria fulfill this criterion. Thus, less political polarization improves information revelation.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 93-16.

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Length: 21 pages
Date of creation:
Date of revision:
Publication status: Published in: Review of Economic Studies, 1996, 63(2) pp 331-344
Handle: RePEc:kud:kuiedp:9316
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