Economic Policies and Political Competition

Abstract

Economic policies in a democracy are subject to influence by interested parties or coalitions of individuals who seek outcomes in their favor. Under direct democracy, voters directly determine the choice of policy, and the median-voter theorem and associated conceptions are pertinent. Under representative democracy, voters are in principle the principals who via the ballot box designate economic policies to their elected representatives as political agents. However, in practice this principal-agent ordering may be reversed, as the politician or candidate for political office seeks campaign contributions to facilitate communication of the merits of his policy position or demerits of his opponent to the constituency of voters. Campaign contributions or political expenditures are then central to the outcome of political competition and the determination of policy. To influence the political -- and thereby the policy -- outcome, interested parties have an incentive to make campaign contributions to influence the policy pronouncements of political candidates. In this sense, the politician or political candidate remains the agent, not the principal; but this is not the traditional principal-agent relationship of electoral democracy whereby the voters -- or the median voter -- designate policy outcomes.KeywordsPolitical CompetitionMultinational FirmCampaign ContributionPolitical PolarizationNational FirmThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.