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Political agency model of persistent electoral success with endogenous rents

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  • Vukovic, Vuk

Abstract

The paper presents a political agency model that observes how budgetary decisions on public good production affect the prospects of holding office for an incumbent political party. A simple budgetary function is broadened to include other expenditures such as public sector wages and social transfers so as to present a constraint to rent-extraction. Upon this a ratio of public goods to other expenditures is determined, which the party must keep within certain boundaries set by the voters. Rents are extracted from public good expenditures instead of being exogenously given as a part of a budget, as the party must be able to conceal rent-extraction due to constitutional boundaries. The incumbent’s decision on rents and public good production directly affects the state of the economy upon which the voters decide whether to re-elect the incumbent or not. Incumbents make their decisions based on observing the economic growth shock. For high levels of growth they decide to respect the voter re-election rule, while for low levels they will defect and extract maximum rents. In a repeated game setting an incumbent will always chose the optimal strategy with respect to the observed growth shock. This way, for high enough levels of economic growth an incumbent party may stay in office for an infinite amount of periods and keep maximizing rents with respect to the given constraints, without having to trade-off rents for holding office. The paper presents empirical evidence on United States gubernatorial and state legislature elections from 1992 to 2008 to evaluate the underlining theory.

Suggested Citation

  • Vukovic, Vuk, 2011. "Political agency model of persistent electoral success with endogenous rents," MPRA Paper 39085, University Library of Munich, Germany, revised 25 Jan 2012.
  • Handle: RePEc:pra:mprapa:39085
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    File URL: https://mpra.ub.uni-muenchen.de/47386/11/Persistent%20Electoral%20Success%20with%20Endogenous%20Rents.pdf
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    References listed on IDEAS

    as
    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
    3. Besley, Timothy & Smart, Michael, 2007. "Fiscal restraints and voter welfare," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 755-773, April.
    4. Mattozzi, Andrea & Merlo, Antonio, 2008. "Political careers or career politicians?," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 597-608, April.
    5. John A. List & Daniel M. Sturm, 2006. "How Elections Matter: Theory and Evidence from Environmental Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1249-1281.
    6. Smart, Michael & Sturm, Daniel M., 2013. "Term limits and electoral accountability," Journal of Public Economics, Elsevier, vol. 107(C), pages 93-102.
    7. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    8. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
    9. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, January.
    10. Claudio Ferraz & Frederico Finan, 2011. "Electoral Accountability and Corruption: Evidence from the Audits of Local Governments," American Economic Review, American Economic Association, vol. 101(4), pages 1274-1311, June.
    11. Gagliarducci, Stefano & Nannicini, Tommaso & Naticchioni, Paolo, 2010. "Moonlighting politicians," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 688-699, October.
    12. Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, vol. 78(4), pages 796-805, September.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Is there such a thing as an Austro-Keynesian?
      by Vuk Vukovic in Don't worry, I'm an economist on 2012-08-27 20:00:00
    2. Reforming democracies
      by Vuk Vukovic in Don't worry, I'm an economist on 2012-09-28 23:15:00
    3. In honour of James M. Buchanan
      by Vuk Vukovic in Don't worry, I'm an economist on 2013-01-19 18:27:00

    More about this item

    Keywords

    Political agency; rent-extraction; public good production; political parties; endogenous rents;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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