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Ex Post Inefficiency in a Political Agency Model

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  • Casamatta, Georges
  • De Paoli, Caroline

Abstract

We extend the model of Schultz (1996) to a dynamic setting with no policy commitment. Two parties that compete for election must choose the level of provision of a public good as well as the tax payment needed to finance it. The cost of producing the good may be high or low and this information is not known to the voters. We show that there exists an equilibrium in which the party that does not want much of the public good use the inefficient (high cost) technology even though the efficient one is available. Using the low cost technology would, by informing the voters about the cost parameter, force it to produce an excessively high level of the good. Interestingly, this equilibrium is not symmetric, suggesting that a party with a strong taste for the public good is less likely to adopt a wasteful policy.

Suggested Citation

  • Casamatta, Georges & De Paoli, Caroline, 2004. "Ex Post Inefficiency in a Political Agency Model," CEPR Discussion Papers 4275, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4275
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    References listed on IDEAS

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    1. Christian Schultz, 1996. "Polarization and Inefficient Policies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 331-344.
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    6. Jeffrey Banks & John Duggan, 2001. "A Multidimensional Model of Repeated Elections," Wallis Working Papers WP24, University of Rochester - Wallis Institute of Political Economy.
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    More about this item

    Keywords

    Commitment; Dynamic electoral competition; Ratchet effect;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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