A Dynamic Model of Electoral Competition with Costly Policy Changes

Hans Gersbach, Philippe Muller () and Oriol Tejada
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Philippe Muller: ETH Zurich, Switzerland

No 17/270, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We consider an infinite-horizon model of elections where policy changes are costly for citizens and parties. The so-called costs of change increase with the extent of the policy shift and make policy history-dependent. First, we provide a detailed description of the equilibrium dynamics and analyze how policies are influenced by history, costs of change, party polarization, and the incumbent's ability. We show that policies converge to a stochastic alternation between two states and that in the long run costs of change have a moderating effect on policies. Second, we analyze welfare as a function of the marginal cost of change. If the initial level of policy polarization is low, welfare is highest for intermediate marginal costs of change. Moreover, any positive level of costs of change will benefit society if the future is sufficiently valuable. If the initial level of policy polarization is high, however, welfare will be highest for low or zero costs of change.

Keywords: democracy; dynamic elections; political polarization; costs of change; Markov perfect equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C73 D72 D78 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017-04
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-mic and nep-pol
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