Journal Article

Polarization and Inefficient Policies

Christian Schultz

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 63, issue 2, pages 331-344
Published in print April 1996 | ISSN: 0034-6527
e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.2307/2297855
Polarization and Inefficient Policies

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Two parties have different goals. Voters, but not parties, are uncertain about the functioning of the economy, in this case the costs of producing a public good. The parties each propose a policy, an election is held and the policy of the winning party is implemented. Voters and parties care about the level of the public good and costs. Two kinds of sequential equilibria exist; revealing, where voters learn the true costs and the implemented policy adjusts to costs, and non-revealing. If parties' preferences are polarized only non-revealing equilibria fulfill a refinement criterion like the intuitive criterion. If they are alike only revealing equilibria fulfill this criterion. Thus less political polarization improves information revelation.

Journal Article.  0 words. 

Subjects: Economics

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