Political Accountability with Outsiders

We present a moral hazard model of electoral accountability that challenges the common view of the populist vote as mere frustration with the elite. Rational voters use the threat of electing outsiders to incentivize more competent insiders whose policy preferences diverge from those of voters. Their optimal retention strategy involves differentiated punishment for failing incumbents, replacing them either with other elite politicians or with outsiders. The latter only occurs when the incumbent’s policy is both perceived as a failure and as benefiting the elite. This strategic voting behavior explains why outsider electoral success is often volatile: rational voters may back an outsider in one election and an establishment candidate in another, without changing their fundamental preferences.