Political Economic Theory

Thu, Aug 11 2022, 9:00am - Fri, Aug 12 2022, 5:00pm PDT
Graduate School of Business
Room TBA
655 Knight Way, Stanford
[Hybrid session]
Organized by
  • Avidit Acharya, Stanford University
  • Steve Callander, Stanford GSB
  • Hülya Eraslan, Rice University
  • Dana Foarta, Stanford GSB
  • Tom 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 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, August 11, 2022

Aug 11

8:30 am - 9:00 am PDT

Registration Check-In • Breakfast

Aug 11

9:00 am - 9:10 am PDT

Opening Remarks

Aug 11

9:10 am - 9:55 am PDT

False Narratives and Political Mobilization

Presented by: Simone Galperti (UC San Diego)
Co-author(s): Kfir Eliaz (Tel Aviv University) and Ran Spiegler (Tel-Aviv University and University College London)

We present an equilibrium model of politics as a battle between narratives over public opinion. We conceptualize narratives as subjective models that attribute a commonly valued outcome to (potentially spurious) postulated causes. When quantified against empirical observations, these models generate a belief over the outcome as a function of its postulated causes. In our setting, a political platform consists of a policy, a coalition of social groups with diverse intrinsic attitudes to policies, and a narrative. Coalition members share a belief that is induced by their common narrative. The intensity of this belief and the intrinsic attitudes to the policy determine the strength of the coalition’s mobilization. Only platforms that generate maximal mobilization prevail in equilibrium. Our equilibrium characterization demonstrates how false narratives can be detrimental for the common good, and how political fragmentation leads to their proliferation. The false narratives that emerge in equilibrium attribute good outcomes to the exclusion of social groups from ruling coalitions.

Aug 11

10:00 am - 10:45 am PDT

Communicating with Anecdotes

Presented by: Marcus Mobius (Microsoft Research)
Co-author(s): Nicole Immorlica (Microsoft Research), Brendan Lucier (Microsoft Research), and Nika Haghtalab (UC Berkeley)

We study a communication game between a sender and receiver where the sender has access to a set of informative signals about a state of the world. The sender chooses one of her signals and communicates it to the receiver. We call this an “anecdote”. The receiver takes an action, yielding a utility for both players. Sender and receiver both care about the state of the world but are also influenced by a personal preference so that their ideal actions differ. We characterize perfect Bayesian equilibria when the sender cannot commit to a particular communication scheme. In this setting the sender faces “persuasion temptation”: she is tempted to select a more biased anecdote to influence the receiver’s action. Anecdotes are still informative to the receiver but persuasion comes at the cost of precision. This gives rise to “informational homophily” where the receiver prefers to listen to like-minded senders because they provide higher-precision signals. In particular, we show that a sender with access to many anecdotes will essentially send the minimum or maximum anecdote even though with high probability she has access to an anecdote close to the state of the world that would almost perfectly reveal it to the receiver. In contrast to the classic Crawford-Sobel model, full revelation is a knife-edge equilibrium and even small differences in personal preferences will induce highly polarized communication and a loss in utility for any equilibrium. We show that for fat-tailed anecdote distributions the receiver might even prefer to talk to poorly informed senders with aligned preferences rather than a knowledgeable expert whose preferences may differ from her own because the expert’s knowledge also gives her likely access to highly biased anecdotes. We also show that under commitment differences in personal preferences no longer affect communication and the sender will generally report the most representative anecdote closest to the posterior mean for common distributions.

Aug 11

10:45 am - 11:15 am PDT


Aug 11

11:15 am - 12:00 pm PDT

Bayesian Doublespeak

Presented by: Alice Hsiaw (Brandeis University)
Co-author(s): Ing-Haw Cheng (University of Toronto)

Why does misinformation persist, and how does it distort the long-run beliefs and actions of rational agents? We study a model where receivers see an infinite stream of messages from a sender of unknown type who observes private signals about an unknown state of the world. We characterize the conditions for “doublespeak” equilibria where one sender type repeatedly reveals each private signal truthfully but another sender type repeatedly fabricates false values of her private signals. Receivers only partially learn the true state in the long run irrespective of the true sender type, resulting in long-run disagreement and ex post incorrect actions by some receivers. Equilibrium fact-checking by receivers does not induce more truth-telling among sendertypes but reputational concerns can. Our results cast doubt on the presumption that rational agents can pierce through persistent extreme lies in the long run and highlight the deleterious effects of such lies for receiver welfare.

Aug 11

12:00 pm - 1:45 pm PDT

Lunch at GSB Plaza

Aug 11

1:45 pm - 2:30 pm PDT


Presented by: Joyee Deb (Yale University)
Co-author(s): Deepal Basak (Indiana University) and Aditya Kuvalekar (University of Essex)

Casual observation suggests that social media can have an important impact on political activism: Increased connectedness via social media means that even dispersed groups see more similar information, allowing them to get united and mobilized towards a shared goal. This paper presents a natural model of a protest game, in which different groups of agents must strategically decide whether to engage in a mass protest against a regime. There is incomplete information about the desirability of the regime change. Protesting is costly for any individual protestor, but a minimum number of protestors is required to make a protest successful. Thus, contrary to most of the existing literature, our model allows us to view protests as games with both strategic substitutability and strategic complementarity. Further, there is uncertainty about the population size. In such a setting, we examine the role of increased interdependence of information on the size of mass protests. We propose a natural order of interdependence of information structures and use it to characterize when increased interdependence increases or reduces the size of mass protests. Formally, we consider a model with a binary state of the world θ ∈ {0, 1}, with protest being desirable in one state (θ = 1) and not in the other. Society comprises a finite number of groups NG ≥ 2, who all have the same preferences but do not have access to the same information. Each group receives a signal y about the state, drawn from a distribution with finite support. Each individual must decide whether or not to engage in costly protest after observing only the signal of her own group. Protesting entails a cost c > 0, and a successful protest yields a benefit θ in state θ. A minimum number of protesters ¯n is required for a mass protest to be successful. Individuals do not know the size of their own or other groups: In particular, group sizes are independent Poisson random variables with mean N. Notice that there is strategic uncertainty (uncertainty about whether agents from other groups will turn up to protest) that stems from two sources: First, individuals do not know what information individuals in other groups have, and second, they don’t know the sizes of the groups. Increasing interdependence or similarity of information across groups can potentially mitigate some strategic uncertainty because the private signal of a group now has additional information about the other groups’ signals, and thus their likelihood of turning up to protest. We show, in fact, that increasing interdependence can have two opposing effects. On the one hand, it can help coordination by encouraging individuals to protest because their belief, conditional on their own signal, points towards other groups protesting as well. On the other hand, it can exacerbate the incentive to free-ride: A high likelihood of many agents protesting reduces the probability that any individual is pivotal, dampening the individual incentive to engage in costly protest. We propose a natural order of interdependence of information structures, that we call “Concentration Along Diagonal (CAD) order,” and use it to provide a simple characterization, in terms of the primitives, of when increased interdependence increases or reduces the size of mass protests. In particular, we show that increasing interdependence in the CAD order is unambiguously good (bad) when the resilience of the regime (measured by the number of protesters required for successful protest) is high (low) enough. We also characterize how interdependence affects not just the size of the protests but also the probability of successful protests. Somewhat counterintuitively, it turns out that increased interdependence of information can increase the size of mass protest, while at the same time reducing the probability of a successful protest. The paper also makes a methodological contribution by proposing the CAD order for comparing the interdependence of information structures. Intuitively, it captures the idea of realized signals being higher together or lower together. Importantly, in contrast to other standard notions of interdependence of distributions, CAD provides a way to compare conditional distributions that can be useful in many other game theoretic settings.

Aug 11

2:35 pm - 3:20 pm PDT

Persistent Protests

Presented by: Sofia Correa (University of Chile)

A continuum of citizens with heterogeneous opportunity costs participate in a public protest, with well-defined demands. The government can concede at any time. As long as it does not, it shoulders a cost that is increasing in time and in participation rates. Apart from their collective demands, citizens enjoy a “merit reward" if the government concedes while they are actively participating. A protest equilibrium of the ensuing dynamic game must display: (a) a build-up stage during which citizens continuously join the protest, but the government ignores them, followed by (b) a peak at which the government concedes with some positive probability, failing which there is (c) a protracted decay stage, in which the government concedes with some density, and citizens continuously drop out. Citizens with higher opportunity costs enter later and exit earlier. While there are multiple equilibria, every equilibrium with protest has the above properties, and the set of all equilibria is fully described by a single pseudo-parameter, the protest peak time, which can vary within bounds that I characterize. Preliminary evidence from the Black Lives Matter movement support the features that I extract from this model.

Aug 11

3:20 pm - 3:50 pm PDT


Aug 11

3:50 pm - 4:35 pm PDT

The Point of Attack: Where and Why Does Oil Cause Armed Conflict in Africa?

Presented by: Mike Gibilisco (California Institute of Technology)
Co-author(s): Graeme Blair (UCLA) and Darin Christensen (UCLA)

According to the resource curse, oil revenues constitute a lucrative prize, motivating rebel groups to fight for control of resource-rich territory. Yet, rebels rarely attack sites with the most oil, such as oil fields and terminals. To explain this finding, we develop a new model with elements of crisis-bargaining and Blotto games and use geo-spatial data on the location of oil infrastructure and armed conflict events to assess its implications. First, we show that rebels focus their attacks on pipelines and that more critical infrastructure has no discernible effect on conflict. Second, to prevent the government from thwarting their attacks, we find that rebels strategically randomize where they strike. Third, we find that increased oil prices have countervailing effects: as the black-market price increases, so too do the returns to oil theft; but as the export price increases, violence abates because, we argue, governments are more eager to “bargain away” conflict. Overall, groups sabotage pipelines because they expect these sites to be vulnerable and because such disruption can compel governments to address their demands. 

Aug 11

5:30 pm - 8:00 pm PDT

Conference Dinner

Friday, August 12, 2022

Aug 12

8:30 am - 9:00 am PDT


Aug 12

9:00 am - 9:45 am PDT

Polarization and Media Bias

Presented by: A. Arda Gitmez (Bilkent University)
Co-author(s): Pooya Molavi (Northwestern University)

This paper presents a model of partisan media trying to persuade a sophisticated and heterogeneous audience. We base our analysis on a Bayesian persuasion framework where receivers have heterogeneous preferences and beliefs. We identify an intensive-versus-extensive-margin trade-off tthat drives the media’s choice of slant: Biasing the news garners more support from the audience who follows the media but reduces the size of the audience. The media’s slant and target audience are qualitatively different in polarized and unimodal (or non-polarized) societies. When the media’s agenda becomes more popular, the media become more biased. When society becomes more polarized, the media become less biased. Thus, polarization may have an unexpected consequence: It may compel partisan media to be less biased and more informative.

Aug 12

9:50 am - 10:35 am PDT

Identity-Based Elections

Presented by: Ravideep Sethi (University of Utah)
Co-author(s): Helios Herrera (University of Warwick)

We study how media choice driven by political identity can influence electoral results. Citizens gather information from mainstream news but also from partisan media sources which filter news in particular predetermined ways. We assume that citizens process all information they receive correctly but choose their own media sources in a behavioral self-serving way to try to preserve their political faith/identity. That is, they attempt to rationally counteract mainstream news that they might view as unfavorable. In the baseline setup, we assume that citizens on either side of the political spectrum are exposed to different extents to non-partisan mainstream news, as in the U.S. case. This endogenous media choice generates an electoral advantage for the less exposed side, which can turn into a sure electoral victory even for the wrong candidate in a democracy. Results are robust to forms of media distrust and are stronger if citizens have biased priors. In illiberal democracies, where the government controls the media, official media propaganda works only if citizens are unaware of its bias or if the government can engage in censorship. Propaganda backfires in the presence of freely available chosen media.

Aug 12

10:35 am - 11:05 am PDT


Aug 12

11:05 am - 11:50 am PDT

Political Bargaining

Presented by: Deepal Basak (Indiana University)
Aug 12

11:55 am - 12:40 pm PDT

Crisis Dynamics and Political Control

Presented by: Federica Izzo (UC San Diego)
Co-author(s): Peter Bills (Vanderbilt University)

When will policymakers act to solve a crisis? In this paper, we begin with the observation that crises may alter the bargaining power of different political actors. For example, if a crisis is ongoing then the party in power may be able to extract policy concessions from its opponents in return for acting on the crisis. Thus, a crisis represents a window of opportunity that allows the party in power to obtain more favorable policy outcomes. In turn, this creates the possibility of inefficient delay on the crisis dimension: parties may prefer not to address the crisis today in order to strategically exploit the window of opportunity tomorrow, even if statically they would prefer to solve it right away. We characterize conditions under which this delay materializes, and describe how changes in the political environment influence how the crisis evolves over time.In our model, there are two parties that repeatedly bargain over an ideological policy and whether to address on ongoing crisis, where the policy and crisis dimensions are orthogonal to each other. In each period, one party is in the majority and makes a proposal on the policy and crisis dimensions. The majority party may be strong, e.g., it controls the presidency or has high internal discipline, in which case it can implement its preferred policy program and choose to solve the crisis even without the consent of the minority. In other periods, instead, conditions are less favorable and the minority party must also support the proposal, otherwise the status quo remains in place. Additionally, if the crisis has not yet been solved then it imposes a common cost on the parties, and this cost may increase over time.We show that fluctuations in the parties’ strength over time are crucial to generate delay.If the party in power today fears it will be in a weaker position in the future, this generates incentives to leave the window of opportunity open by not acting on the crisis today. Indeed, in our setting, when a crisis is ongoing the majority party can obtain concessions from the veto player by bundling proposals on the ideological policy and crisis dimension. Thus, the majority party may use the unsolved crisis as insurance to increase its bargaining power if it is not strong in the future. Of course, this also comes at the risk that the opposing party will be in power in the future and will exploit the window to push its own policy agenda.

Aug 12

12:40 pm - 2:10 pm PDT

Lunch at GSB Plaza

Aug 12

2:10 pm - 2:55 pm PDT

Sticky Spending, Sequestration, and Government Debt

Presented by: Facundo Piguillem (EIEF)
Co-author(s): Alessandro Riboni (Ecole Polytechnique)

Once established, government spending programs tend to continue. Spending inertia can lead to unsustainable debt levels that require fiscal stabilization, such as “sequestration.” We develop a political economy model of debt with sticky spending by assuming that the government must maintain a fraction of past spending. We show that inertia insures against the risk of political turnover, which may reduce politicians’ incentives to accumulate debt. However, if preexisting commitments are large, as in the current U.S. context, inertia exacerbates incentives to increase debt; faced with the prospect of stabilization, the government overspends to “dilute” the spending commitments of past administrations.

Aug 12

3:00 pm - 3:45 pm PDT

Organizational Capacity and Project Dynamics

Presented by: Dana Foarta (Stanford University)
Co-author(s): Mike Ting (Columbia University)
Aug 12

3:45 pm - 4:00 pm PDT