Session 2: Political Economic Theory

Organized by
  • Avidit Acharya, Stanford University
  • Steve Callander, Stanford GSB
  • Hülya Eraslan, Rice University
  • Dana Foarta, Stanford GSB
  • Thomas Palfrey, California Institute of Technology

This session will bring together researchers from political science and economics who apply economic theory to the study of politics. This includes work in the areas of voting theory, political bargaining, policy-making and implementation, lobbying and regulation, and the media and information environment in which politics takes place. The session will encourage productive dialogue between researchers in economic theory that have developed ideas and tools relevant to the study of politics, and those in political science who study questions and topics that can be addressed by economic theory.

In This Session

Thursday, July 22, 2021

Jul 22
9:00 am - 9:45 am

Short Term Political Memory and the Inevitability of Polarization

Presented by: Gilat Levy (London School of Economics)
Co-author(s): Ronny Razin (London School of Economics)

We analyse a dynamic model in which voters use past observations to learn about the optimal outcome but have a finite memory. Political parties are self-interested, with polarised ideal policies, and voters with party loyalty are responsive to a certain degree to parties whose policy is based on a better interpretation of past observations. We show that short-term memory leads to political cycles of polarisation and convergence. Historical periods of convergence lead parties to polarise, whereas periods of historical polarisation imply convergence of platforms. More generally our framework allows us to model the strategic use of biased histories in political competition such as the use of nostalgia.

Jul 22
9:45 am - 10:30 pm

A Theory of Non-Democratic Redistribution and Public Good Provision

Presented by: Nicola Persico (Northwestern University)

This paper proposes a new theoretical definition of (non-)democracy based on two “political rights” parameters ( η, k) that capture the extensive and intensive margin of the population’s ability to replace the incumbent; and an “individual rights” parameter λ that captures the degree to which individual citizens are protected from political retribution. Within the rules of the game specified by ( η; k; λ), two office-motivated politicians compete for power by making promises to citizens. The policy space features a trade-off between redistribution and public good provision. I study two types of public good: one that delivers egalitarian benefits, the other that delivers non-egalitarian benefits. I find that when political rights are stronger, and/or individual rights are weaker, competition drives politicians to treat citizens more equally and to provide the egalitarian public good more efficiently. Regimes, where political and individual rights are perfectly protected, give politicians incentives to treat citizens inequitably for political advantage; these regimes provide the non-egalitarian public goods efficiently.

Jul 22
10:30 am - 10:45 am


Jul 22
10:45 am - 11:30 am

The Economics of Partisan Gerrymandering

Presented by: Alexander Wolitzky (Massachusetts Institute of Technology)
Co-author(s): Anton Kolotilin (UNSW Business School)

In the United States, the boundaries of congressional districts are often drawn by political partisans. In the resulting partisan gerrymandering problem, a designer partitions voters into equal-sized districts with the goal of winning as many districts as possible. When the designer can perfectly predict how each individual will vote, the solution is to pack unfavorable voters into homogeneous districts and crack favorable voters across districts that each contain a bare majority of favorable voters. We study the more realistic case where the designer faces both aggregate and individual-level uncertainty, provide conditions under which appropriate generalizations of the pack and crack solution remain optimal, and analyze comparative statics. All districting plans that we find to be optimal are equivalent to special cases of segregate-pair districting, a generalization of pack and crack where all sufficiently unfavorable voter types are segregated in homogeneous districts, and the remaining types are matched in a negatively assortative pattern. Methodologically, we exploit a mathematical connection between gerrymandering—partitioning voters into districts—and information design—partitioning states of the world into signals.

Jul 22
11:30 am - 12:15 pm

Making the Most of Limited Government Capacity: Theory and Experiment

Presented by: Sylvain Chassang (Princeton University)
Co-author(s): Lucia Del Carpio (INSEAD) and Samuel Kapon (New York University)

Friday, July 23, 2021

Jul 23
9:00 am - 9:45 pm

A Model of Focusing in Political Choice

Presented by: Salvatore Nunnari (Bocconi University)
Co-author(s): Jan Zapal (CERGE-EI)

This paper develops a model of voters’ and politicians’ behavior based on the notion that voters focus disproportionately on and, hence, overweigh certain attributes of policies. We assume that policies have two attributes—resources devoted to two distinct issues (e.g., defense and education)—and that voters focus more on the attribute in which their options differ more. First, we consider exogenous policies and show that focusing polarizes the electorate. Second, we consider the endogenous supply of policies by politicians running for office and show that focusing leads to inefficiencies: voters that are more focused are more influential; distorted attention empowers social groups that are larger and more sensitive to changes on either issue; resources are channelled towards divisive issues. Finally, we show that augmenting classical models of electoral competition with focusing can contribute to explain puzzling stylized facts such as the inverse correlation between income inequality and redistribution.

Jul 23
9:45 am - 10:30 am

Organizing for Collective Action: Olson Revisited

Presented by: Marco Battaglini (Cornell University)
Co-author(s): Thomas Palfrey (California Institute of Technology)
Jul 23
10:30 am - 10:45 am


Jul 23
10:45 am - 11:30 am

A Model of Politics and the Central Bank

Presented by: Carolin Pflueger (University of Chicago)
Co-author(s): Wioletta Dziuda (University of Chicago)

We present a two-period model examining how the central bank and the elected government jointly shape elections and economic outcomes. An apolitical central bank minimizes a quadratic loss function in inflation and unemployment along an expectational Phillips curve, which is shifted by the government's quality. Fully rational voters optimally choose between the incumbent, whose quality they infer from unemployment, and a challenger of unknown quality. We nd that governments prefer more inflation-averse central banks than the social planner, rationalizing the political success of inflation-targeting in practice. In inflation-targeting, however, has negative economic consequences by allowing lower quality incumbents to be reelected.

Jul 23
11:30 am - 12:15 pm

Persuasion with Verifiable Information

Presented by: Maria Titova (Vanderbilt University)

This paper studies how an informed sender with state-independent preferences persuades receivers to approve his proposal with verifiable information. I find that every equilibrium outcome is characterized by each receiver’s set of approved states that satisfies this receiver’s obedience and the sender’s incentive-compatibility constraints. That allows me to describe the complete equilibrium set. In the sender-worst equilibrium, information unravels, and receivers act as if fully informed. The sender-preferred equilibrium outcome is the commitment outcome of the Bayesian persuasion game. In the leading application, I study targeted advertising in elections and show that by communicating with voters privately, a challenger may win elections that are unwinnable with public disclosure. The more polarized the electorate, the more likely it is that the challenger swings an unwinnable election with targeted advertising.