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PE: Electoral Competition
PE: Electoral Competition
Krzysztof Makarski
Electoral Competition
Assumptions
Starting point Hotelling (1929) and Downs (1957).
Suppose that elections involve two identical politicians (or parties).
Politicians are opportunistic in the sense they strive to maximize their vote share, or alternatively
probability of winning.
Politicians can make binding commitments to policy platforms in the course of electoral campaign.
The outcome is the Condorcet winner (if exists).
We next show it formally but intuition is very simple, with two alternatives (and one stage) all voters
vote sincerely, thus a policy platform coinciding with a Condorcet winner always captures at least half
of the vote when it is up against any other platform.
1.1
Introduction
(3.1)
where H() is a concave and increasing functions. Note that (3.1) implicitly (unrealistically) assumes
that g cannot be targeted to specific groups.
Income differs across individuals, but government cannot differentiate taxes therefore the budget constraint is
ci = (1 )y i
(3.2)
where y i is distributed in the population according a a cumulative distribution function (c.d.f.) F ().
Denote the average income as y = E(y i ), where E denotes expected value. Denote the median value
of income as y m (note F (y m ) = 0.5). We assume y m < y, which means that the distribution is skewed
to the right (similarly as we observe in virtually every country).
Government revenue y is spend on public consumption g to satisfy BC g = y.
The policy preferences in terms of policy g ( has to satisfy the budget constraint) can be obtained by
substituting into W
i
W
= ci + H(g)
(1 )y i + H(g)
g
= (1 )y i + H(g)
y
Therefore
yi
(y g)
y
which is concave in policy g, implying that every citizen has a uniquely preferred policy.
W i (g) = H(g) +
(3.3)
To find the preferred policy of agent i, g i take the derivative of W i (g) w.r.t. g to obtain
0
yi
+ H (g)
y
0
H (g)
yi
y
g i = (H )1 (
yi
)
y
(3.4)
Concavity of H implies that richer individuals want smaller government (since they pay lower taxes
then). For example, consider H(g) = log g then (3.4) becomes g = yyi .
Note that clearly (3.3) satisfies intermediate preferences property.
Denote agents type as i = y i so that the higher type means poorer agent. Then since W i (g) =
i
H(g) + yy (y g) we have
W (g; i ) = H(g)
i
i
(y g) = H(g) + (g y)
y
y
2 W (q, i )
1
= 0.
i
g
y
W i (g)dF = W (g)
W =
i[0,1]
(note: the formula above is the sum of individual utilities with equal weights)
0
Therefore the utilitarian objective (the socially optimal policy) satisfies W (g) = 0 which gives g =
0
(H )1 (1), for example for H(g) = log g we have g = 1.
Downsian Electoral Competition
Assume there are two parties indexed by P {A, B}. Each party once in power receives an exogenous
rent R. Denote the probability that party P wins an election as pP and the vote share of party P as
P .
Timing:
The two candidates simultaneously and noncooperatively announce their electoral platforms: gA
and gB .
Elections are held in which voters choose between two candidates.
The elected candidate implements her policy platform.
We start with assumption that everyone has the same income y i = y (income distribution is degenerate).
Each voter votes for the candidate with the platform that gives them the highest utility. Furthermore,
we assume that if voter is indifferent she tosses a coin. This implies the following probability of winning
for candidate A:
Median-Voter Equilibria
Suppose that income distribution is not degenerate and is given by the cumulative distribution function
(c.d.f.) F () that is a continuous function.
Since voter i votes for candidate A with probability 1 if W i (gA ) > W i (gB ), with probability 1 /2 if
W i (gA ) = W i (gB ), and with probability 0 if W i (gA ) < W i (gB ), we have
g m = (H 1 ) (
ym
)
y
(3.6)
Note that for skewed to the right distributions equilibrium policy implies overspending relative to the
utilitarian benchmark g m > g .
One of the (testable) predictions of the model is that larger governments are associated with a more
skewed income distribution.
1.2
Probabilistic Voting.
Suppose that the population consists of three distinct groups J {R, M, P } representing the rich, the
middle class, and the poor, respectively.
Similarly as above
W J (g) = H(g) +
yJ
(y g)
y
J
Everyone in group
y R > y M > y P . The population share of each group
P JJ has the same income
P y Jwith
J
J
is , with J = 1, therefore y = J y .
(3.7)
The swing voter in group J, by definition, is indifferent between two parties, therefore hers i,J denoted
as J is equal to
J = W J (gA ) W J (gB )
(3.8)
and all voters with i,J J prefer party A. Therefore in group J the mass of agents J ( J + 21J )
votes for candidate A. Recall that the density in each group is J , thus the probability vote share of
R J
candidate A in each group is P r( i,J J ) = 1 J di = J ( J + 21J ). And candidate A vote
2J
J J ( J +
1 X J J J
1
)= +
J
2
2
J
1
1 X J J J
1
} = Pr{ +
}
2
2
2
Pr{A
X
Pr{
J J J 0}
X
Pr{
J J [W J (gA ) W J (gB ) ] 0}
X
X
Pr{
J J [W J (gA ) W J (gB )]
J J 0}
X
X
Pr{
J J [W J (gA ) W J (gB )]
J J }
1X J J J
Pr{
[W (gA ) W J (gB )]}
where
1
1
, 2
] and has density
J J . Next we use the fact that U [ 2
Z
pA
J J [W J (gA )W J (gB )]
=
1
2
=
=
1
1X J J J
[W (gA ) W J (gB )] (
)]
2
J
1 X J J J
+
[W (gA ) W J (gB )]
2
(3.9)
Probability becomes smooth function of the distance between two platforms (there is no kink).
In unique equilibrium both candidates announce exactly the same platform. Note that
pB
1 X J J J
[W (gA ) W J (gB )]
2
1 pA = 1
1 X J J J
+
[W (gB ) W J (gA )]
2
Therefore both agents share the same problems. Recall payoff of player A is pA R and of player B is
pB R = (1 pA )R.
Note while choosing platform each party takes the policy of the other party as given therefore each
party maximizes something similar to social welfare function but with weights J J instead of J .
The higher J the more homogeneous group J is. The more homogeneous group the more votes party
gets by tilting its policy towards this group.
4
To formally obtain optimal policy take the derivative of pA R w.r.t. gA (using 3.8 and W J (g) =
J
H(g) + yy (y g)) to get
0
X J J yJ
R
(
+ H (g)) = 0
y
J
H (g)
J J
J J y i
J J (
g
where y =
yi
)
y
0
y
(H )1 ( )
y
(3.10)
The main result is that the more swing voters a given group has (the more switches with small change
in policy) the more policy is tilted towards this group.
Lobbying can additionally skew the selection process towards lobbying groups (later).
Exercise #1
1. Suppose that there are two parties A and B offering policy platforms, respectively, qA and qB . Voter i
2
has preferences over policy q given by W i (qA ) = 100 + qA 12 qA
and preferences over policy qB given
1 2
i
i
i
by W (qB ) + + = 100 qB + 2 qB + + . Moreover, i is uniformly distributed on interval
1
1
1
1
[ 2
, 2
], where = 2, and that is drawn from the uniform distribution on [ 2
, 2
], = 2. The
i
distributions are common knowledge, but only agent i observes his own parameter . The timing is
as in the lecture on probabilistic voting.
(a) Find A .
(b) Find pA .
(c) Which platform is selected by politicians? Which one is implemented?
(d) Discuss your results.
Lobbying
Consider the model from the previous section, but assume J = , for all J.
From (3.10) it implies that in the pure swing-voter model equilibrium policy is socially optimal.
We extend the probabilistic voting model to encompass campaign contributions by interest groups (as
in Baron, 1994).
We assume that groups may be organized in a lobby; and then have the capacity to contribute to
campaign of either of two candidates. Denote the contribution per member of group J to candidate P
(in cash or in kind) as CPJ 0 and total contributions collected by P as
X
CP =
OJ J CPJ
(3.11)
J
(3.12)
1
+ [W (gA ) W (gB ) + h(CA CB )]
2
(3.13)
P
where W (gA ) = J J W J (gA ) is the utilitarian social welfare function and the last term reflects the
influence of campaign spending.
Next we show how groups determine their campaign contributions. Each group maximizes the expected
utility of its members minus the cost of contributions (note: computational mistake in textbook need
to modify to get (3.15))
1
J 2
J 2
) + (J CB
) ]
pA J W J (gA ) + (1 pA )J W J (gB ) [(J CA
2
(3.14)
where the last term represents quadratic cost of contributions (assumption). Note ideology plays no
J
role here. Differentiating w.r.t. CA
we get (recall nonegativity constraint)
pA J
J
(W J (gA ) W J (gB )) (J )2 CA
0
J
CA
computing form (3.13)
pA
= hJ
J
CA
and substituting we get
J
h(W J (gA ) W J (gB )) CA
0
Therefore
J
CA
J
CB
=
=
(3.15)
Note that we are assuming that given gB party A will offer gA such that W J (gA ) W J (gB ) 0 and
J
therefore we substitute CA
= h(W J (gA ) W J (gB )) and CB = 0
X
1
+ [W (gA ) W (gB ) + h(
OJ J h(W J (gA ) W J (gB )))]
2
J
Rearranging
X
X
1
+ {
J [W J (gA ) W J (gB )] +
hOJ J h[W J (gA ) W J (gB )]}
2
J
X
1 X J
+
[W J (gA ) W J (gB )] +
OJ J 2 h2 [W J (gA ) W J (gB )]
2
J
1 X J
+
( + OJ 2 h2 )[W J (gA ) W J (gB )]
2
(3.16)
Note that the problem is symmetric therefore the party B maximizes analogous expression.
J
J
First note that if,
P for all J,O = 0 or for all J, O = 1 the above expression becomes equivalent to
social optimum J J W J (g) (constant in front of the expression does not matter for the derivative).
But, if only some groups are organized the weight of this groups is higher the policy becomes tilted
J
towards them. Next we substitute W J (g) = H(g) + yy (y g) into (3.16) and then differentiate w.r.t.
gA
X
yJ
J ( + OJ 2 h2 )[H(gA ) +
(y gA ) W J (gB )]
y
J
J ( + OJ 2 h2 )[H 0 (gA )
H 0 (gA )
J ( + OJ 2 h2 ) =
yJ
]=0
y
J ( + OJ 2 h2 )
yJ
y
P
1 J J ( + OJ 2 h2 )y J
P J
H 0 (gA ) =
J 2 2
y
J ( + O h )
0
y
g L = (H )1 ( )
y
(3.17)
1.3
Concluding Remarks
Summary
First, we analyzed the Downsian Electoral Competition and Median Voter Equilibrium.
Next, we added probabilistic voting to make it more interesting (and we noted that lobbing can
additionally skew the outcome).
Finally, we showed how the political process can be affected by organized lobbies.