Inefficient policies and incumbency advantage

Abstract

We study incumbency advantage in a dynamic game with incomplete information between an incumbent and a voter. The incumbent knows the true state of the world, e.g., the severity of an economic recession or the level of criminal activities, and can choose the quality of his policy. This quality and the state of the world determine the policy outcome, i.e., the economic growth rate or the number of crimes committed. The voter only observes the policy outcome and then decides whether to reelect the incumbent or not. Her preferences are such that she would reelect the incumbent under full information if and only if the state of the world is above a given threshold level. In equilibrium, the incumbent is reelected in more states of the world than he would be under full information. In particular, he chooses inefficient policies and generates mediocre policy outcomes whenever the voter's induced belief distribution will be such that her expected utility of reelecting the incumbent exceeds her expected utility of electing the opposition candidate. Hence, there is an incumbency advantage through inefficient policies. We provide empirical evidence consistent with the prediction that reelection concerns may induce incumbents to generate mediocre outcomes.JEL code: D72, C73

Last Minute Policies and the Incumbency Advantage

“…The incumbent is able to actively distort the electoral campaign in order to increase his chances of being elected. The models that are closest in spirit to ours are by Hodler et al (2010), Dellis (2009) and Glazer and Lohmann (1999). The first paper considers the preelection implementation of inefficient policies that later increase the pressure to act on the incumbent's signature issues.…”

“…Our model differs from theirs in the channel through which distortions to the electoral campaign are induced. In particular, Hodler et al (2010) show that the incumbent may implement inefficient policies in order to generate his incumbency advantage; we show that this distortion is possible even with an incumbent who only implements what he believes to be the most appropriate policy on every issue, so that it is really the information that distorts beliefs and voter's behavior. Moreover, we find distortions induced directly by both the incumbent's action and the challenger's best response.…”

Elections and the strategic use of budget deficits

“…Dellis (2009) presents a model in which the incumbent may not address policy issues on which the voters like his stance before the election. In addition, an incumbent may use distortionary policies in an attempt to mislead voters who are imperfectly informed about his competence (Rogoff and Siebert, 1988), his preferences (Alesina and Cukierman, 1990), or the optimal level of public spending (Hodler et al, 2007).…”

Public investment and reelection prospects in developed countries

“… It should be noted that, under certain assumptions regarding preferences and the nature of uncertainty, a number of theoretical models can support the opposite result, namely that electoral manipulation of fiscal policy increases Reelection probability (see Rogoff ; Milesi‐Ferretti and Spolaore ; Hodler, Loertscher, and Rohner ).…”

“…Although they do not directly test the impact of fiscal policy on reelection,Klomp and de Haan (2013) find that election-motivated budget cycles have a significant positive (but fairly small) effect on the electoral support for the political parties in government.4 It should be noted that, under certain assumptions regarding preferences and the nature of uncertainty, a number of theoretical models can support the opposite result, namely that electoral manipulation of fiscal policy increases reelection probability (seeRogoff 1990;Milesi-Ferretti and Spolaore 1994;Hodler, Loertscher, and Rohner 2010).…”