On the Feasibility of Unpopular Policies under Re-Election Concerns

Abstract

1. Introduction A common concern about political decision making is that re-election motives lead incumbent politicians to select policies that, although popular among the electorate, are inferior to available, less popular alternatives. This concern, reflected in the notions such as demagogy and mob rule, implies that politicians may be penalized for choosing policies that they believe to be the best, but ironically are rewarded for choosing popular policies that they do not necessarily believe to be the best. In this paper, I study this common concern through series of models.1 For the main model that I will study, politicians differ only in utility from holding office. The main result is that strong re-election motives on the part of the incumbent politicians in general do not render efficient and unpopular policies infeasible. In fact I will show that, under very general conditions, voters' voting decisions do not depend on whether the incumbents have chosen popular policy options, nor are incumbents' policy decisions responsive to policy popularity. We may call this result the irrelevance or neutrality of policy popularity. Note that voters only have limited information, and there is possibility that the unpopular policy may be superior to its alternatives. Voters would take their policy opinions as tentative and be willing to revise them upon the arrival of new information. Then an incumbent's re-election chances will not deteriorate simply because of her choice of unpopular policies. Foreseeing this, incumbents with even strong re-election motives will not find it beneficial to choose popular but inefficient polices.2 To convey the above ideas, I will examine an infinite horizon political agency model, along the line pioneered by Barro (1973). There are two important ingredients in this model. First, politicians are of two types: strong and weak. Both types of politicians are concerned about both social welfare and the utility gained from holding office, whereas the strong type puts smaller weight on the latter. Each politician's type is the politician's private information. If the politicians were homogeneous, the choice between different incumbents would be inconsequential. If their heterogeneity were public information, voters would not need the politicians' past records to infer their preferred future policies. In either case, the question of policy manipulation would no longer exist. (In section 6, I will introduce third type of politicians.) The second ingredient is proper modelling of a policy that could be unpopular but potentially superior. A policy is popular when more voters think that the policy will yield welfare greater than those of its alternatives. Such policy's reflects its ex ante efficiency as perceived by the electorate. The incumbent politician, nevertheless, observes an additional imperfect-information signal about the likely efficacy of the policy.3 Therefore, popular policy might be interim inefficient, whereas an unpopular policy might be interim efficient. One crucial assumption for the policy popularity irrelevance result is that the only difference among politicians is their utility derived from holding office. This suggests that for policy popularity to be relevant, other sorts of heterogeneity among politicians are needed. Suppose, for instance, that the public believes with some probability that the incumbent is ignorant in the sense that she knows about different policy options even less than the public does. Then choice of an unpopular policy might signal the incumbent's ignorance; an incumbent who is informed but with strong re-election motive might then reject the unpopular policy even if it is interim efficient. The rest of the paper is organized as follows. Section 2 introduces the model. Section 3 prepares preliminaries for later sections. Section 4 establishes the efficient perfect Bayesian equilibrium under the assumption that voters vote for the candidate who has greater probability of being strong. …