A Folk Theorem for Repeated Elections with Adverse Selection

Abstract

This article establishes a folk theorem for a model of repeated elections with adverse selection: when citizens (voters and politicians) are sufficiently patient, arbitrary policy paths through arbitrarily large regions of the policy space can be supported by a refinement of perfect Bayesian equilibrium. Politicians are policy motivated (so office benefits cannot be used to incentivize policy choices), the policy space is one-dimensional (limiting the dimensionality of the set of utility imputations), and politicians’ preferences are private information (so punishments cannot be targeted to a specific type). The equilibrium construction relies critically on differentiability and strict concavity of citizens’ utility functions. An extension of the arguments allows policy paths to depend on the office holder's type, subject to incentive compatibility constraints.