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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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  • Tasos Kalandrakis, 2006. "A Reputational Theory of Two Party Competition," Wallis Working Papers WP41, University of Rochester - Wallis Institute of Political Economy.
  • Handle: RePEc:roc:wallis:wp41

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    References listed on IDEAS

    1. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
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    8. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
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    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. repec:cup:apsrev:v:77:y:1983:i:04:p:974-990_25 is not listed on IDEAS
    12. 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.
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    Cited by:

    1. Tasos Kalandrakis & Arthur Spirling, 2009. "Radical Moderation: Recapturing Power in Two-party Parliamentary Systems," Wallis Working Papers WP61, University of Rochester - Wallis Institute of Political Economy.
    2. César Martinelli & John Duggan, 2014. "The Political Economy of Dynamic Elections: A Survey and Some New Results," Working Papers 1403, Centro de Investigacion Economica, ITAM.
    3. Forand, Jean Guillaume, 2014. "Two-party competition with persistent policies," Journal of Economic Theory, Elsevier, vol. 152(C), pages 64-91.

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    Parliamentary Dynamics; Reputation; Westminster.;

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