Miscoordination, Politics And Populism

We present two models that shed light on two issues in the political economy of populism: incumbents who refuse to give up office following a democratic election; and politicians gambling with major policy shifts when their consequences are uncertain. In the democratic transition of power, common knowledge about the veracity of the election process enables citizens to threaten incumbents with protests if they attempt to retain their seats in power. If doubt over electoral integrity prevails, office-seeking incumbents sometimes reject electoral rules. In considering policy gambles, politicians supply policy shifts in response to voters and elites vying for a greater share of economic output. When the mapping from policy to outcomes is uncertain, voters opt for policy gambles, even though these are detrimental to their ex ante welfare, to redress the division of output. These models underscore the importance of institutions that address the source of each coordination failure.