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Dynamic Optimization in Two-Party Models

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  • Warwick J. McKibbin
  • Nouriel Roubini
  • Jeffrey Sachs

Abstract

The goal of this paper is to study the problem of optimal dynamic policy formulation with competing political parties. We study a general class of problems, in which the two competing political parties have quadratic intertemporal objective functions, and in which the economy has a linear structure and a multidimensional state space. For the general linear quadratic problem we develop a numerical dynamic programming algorithm to solve for optimal policies of each party taking into account the party's objectives; the structure of the economy ; the probability of future election results; and the objectives of the other political party.

Suggested Citation

  • Warwick J. McKibbin & Nouriel Roubini & Jeffrey Sachs, 1987. "Dynamic Optimization in Two-Party Models," NBER Working Papers 2213, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2213
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    References listed on IDEAS

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    Cited by:

    1. Dumas, Marion & Rising, James & Urpelainen, Johannes, 2016. "Political competition and renewable energy transitions over long time horizons: A dynamic approach," Ecological Economics, Elsevier, vol. 124(C), pages 175-184.
    2. Shin‐Ichi Fukuda, 1992. "Why Does A Two‐Party System Exist?: A New Economic Explanation," Economics and Politics, Wiley Blackwell, vol. 4(3), pages 277-288, November.
    3. Pablo Astorga, 2001. "The Dictator and the Parties A Study on Policy Co-operation in Mineral Economies," Development Working Papers 157, Centro Studi Luca d'Agliano, University of Milano.

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