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A Reputational Theory of Two Party Competition

We propose a reputational theory of two-party competition. We model the interaction of parties and the electorate as a stochastic game of incomplete information. The parties’ preferred policies (moderate or extreme) are possibly revealed to the electorate only via their policy choices while in government, and partisan preferences change with positive probability following defeat in elections. Due to inertia within party organizations, party preferences display positive serial correlation. When partisans care sufficiently about office, extreme policies are pursued with positive probability by the government only when the ruling party is perceived relatively more extreme than the opposition. In equilibrium such policies occur when (a) both parties are perceived to be more extreme than a long-run benchmark level, and (b) neither party holds a significant advantage regarding its perceived extremism by the electorate. Equilibrium dynamics produce two qualitatively different adjustment paths: one exhibits polarized politics such that there is positive probability of non-moderate policies in the future for a protracted period of time; the other possible adjustment path produces moderation with probability one in all periods. Both adjustment paths are such that one of the two parties (possibly different over time) may win successive elections with high probability in equilibrium.

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Paper provided by University of Rochester - Wallis Institute of Political Economy in its series Wallis Working Papers with number WP41.

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Length: 45 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:roc:wallis:wp41
Contact details of provider: Postal: University of Rochester, Wallis Institute, Harkness 109B Rochester, New York 14627 U.S.A.

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  1. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  2. 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.
  3. John E. Roemer, . "The Democratic Political Economy Of Progressive Income Taxation," Department of Economics 97-11, California Davis - Department of Economics.
  4. Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
  5. Bernhardt, Dan & Dubey, Sangita & Hughson, Eric, 2004. "Term limits and pork barrel politics," Journal of Public Economics, Elsevier, vol. 88(12), pages 2383-2422, December.
  6. John Duggan, . "Repeated Elections with Asymmetric Information," Wallis Working Papers WP9, University of Rochester - Wallis Institute of Political Economy.
  7. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  8. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477, March.
  9. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  10. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
  11. John Duggan & Mark Fey, 2006. "Repeated Downsian electoral competition," International Journal of Game Theory, Springer, vol. 35(1), pages 39-69, December.
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