Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171713
Authors: 
Gersbach, Hans
Muller, Philippe
Tejada, Oriol
Year of Publication: 
2017
Series/Report no.: 
Economics Working Paper Series 17/270
Abstract: 
We consider an infinite-horizon model of elections where policy changes are costly for citizens and parties. The so-called costs of change increase with the extent of the policy shift and make policy history-dependent. First, we provide a detailed description of the equilibrium dynamics and analyze how policies are influenced by history, costs of change, party polarization, and the incumbent's ability. We show that policies converge to a stochastic alternation between two states and that in the long run costs of change have a moderating effect on policies. Second, we analyze welfare as a function of the marginal cost of change. If the initial level of policy polarization is low, welfare is highest for intermediate marginal costs of change. Moreover, any positive level of costs of change will benefit society if the future is sufficiently valuable. If the initial level of policy polarization is high, however, welfare will be highest for low or zero costs of change.
Subjects: 
democracy
dynamic elections
political polarization
costs of change
Markov perfect equilibrium
JEL: 
C72
C73
D72
D78
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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