Abstract
We consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies — it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding facing competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to ‘over experiment’, relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on parties having conflicting objectives, but rather stems from their differing beliefs about the consequences of their actions.
Highlights
Many of the most important public policy problems democratic countries face require cumulative efforts by successive governments to be successfully managed
We show that when learning is active enough, all incumbents will over-experiment relative to a counterfactual in which they are sure to be in power in the future, regardless of their beliefs and the beliefs of their political opponents
Our analysis has shown that when beliefs are the primary source of disagreement between political parties, incumbents have a novel incentive to manipulate their policy choices
Summary
Many of the most important public policy problems democratic countries face require cumulative efforts by successive governments to be successfully managed. The lack of future political control that is characteristic of democratic systems means that, for the purposes of setting ‘long-run’ policies, incumbents have incentives to manipulate their current policy choices so as to influence both who gets elected in the future and the policy choices future governments will make (Persson & Svensson, 1989; Aghion & Bolton, 1990; Tabellini & Alesina, 1990; Milesi-Ferretti & Spolaore, 1994; Besley & Coate, 1998; Persson & Tabellini, 2000; Azzimonti, 2011) These strategic incentives exist even if parties are not purely office seeking, but have interests that coincide with those of a group of voters, e.g. in models of partisan politics. We show that the interaction between active learning and political competition gives rise to a new incentive for incumbents to distort their policy choices This incentive pushes incumbents to choose policies that increase their chances of resolving uncertainty in the future, regardless of their beliefs: they will over experiment. Our work contributes to a wider recent research program which sees information as a source of strategic control in a variety of contexts
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