Resumen de Essays on political economy
Álvaro Delgado Vega
This dissertation starts from the observation that, in most democracies, political competition is organized along party lines. Political parties are generally resilient organizations that survive electoral defeats; hence, we refer to them as long-lived organizations. A widespread assumption in the dynamic political economy literature is that electoral competition involves politicians who cannot run again for office after an electoral defeat and thus, have an effectively shorter time horizon when making policy choices. In this dissertation, consisting of two non-coauthored and one coauthored paper, I explore the implications of long-lived parties for policy-making, electoral competitiveness, interest groups' rent-seeking, and, more broadly, voters' welfare.
Rather than a purely technical assumption, the long-liveness of political parties is important for understanding the political economy and the policy-making of developed countries in the last decades. Before the 2008 economic crisis, western democracies were generally characterized by stable party systems. In those party systems, political parties could expect to remain electorally competitive beyond the immediate future and to regain power if they lost it. Since the 2008 crash, however, the medium-term survival of major parties has grown increasingly uncertain. European major political families after 1945, the Social Democrats and the Conservatives or the Christian Democrats, have decreased their electoral turnout. New parties from the radical left, populist right, green or liberal family have appeared---and sometimes disappeared after some electoral cycles. In other countries like the US, the party system has not been plagued with new competitors but party elites are subjected to intense pressure from outsiders. To understand the implications of this change, we need a theory of how long-lived parties' behavior differs from the one of short-lived organizations or independent political candidates.
The first chapter of this dissertation studies how the long-liveness assumption affects the dynamic incentives of parties to prioritize reelection against other policy objectives. In particular, it emphasizes how the parties' choices when they hold power are affected by their expectations about the rival party's future choices. The second chapter delves into how political parties can achieve long-term agreements with other political organizations, like interest groups and lobbies, due to their long-lived nature. Hence, this chapter studies the quid-pro-quo dynamic agreements between an interest group and two political parties and how these agreements evolve with the process of political turnover. Lastly, the third chapter analyzes the informational role of the opposition party's promise to repeal the incumbent party's policies. This chapter wants to improve our understanding of how the opposition can influence policy-making even if it is out of power and lacks any form of veto power.
We analyse now in greater detail each of the chapters. The first chapter paper presents a dynamic model of electoral competition in which parties are long-lived organizations. In each period, the incumbent chooses between two policies. The competitive policy yields a greater reelection probability. The accommodative policy is the one that, absent electoral effects, the incumbent would prefer. The analysis reveals that parties' incentives to win reelection feed on themselves via a dynamic strategic complementarity effect: the expectation that the rival party will prioritize reelection once in power increases the government's incentives to prioritize reelection today. I consider both virtuous and perverse accountability, in which the competitive policy is socially better or worse, respectively. Parties' competitiveness is more likely under perverse accountability, and it is disincentivized by political turnover, party discipline, and parties' impatience. Lastly, checks and balances foster accommodative policies not only under divided governments but also when government is unified.
The second chapter studies a model in which political parties repeatedly compete for office. Before each election, the interest group decides which party to support. When in power, parties choose the rent they transfer to the interest group to buy its support. Yet, binding agreements are not possible, so agreements must be self-enforcing. When electoral uncertainty is low, the interest group favors an opportunistic agreement in which it always supports the current incumbent. As electoral uncertainty increases, the interest group prefers an exclusive agreement in which it supports a single party even when it is in opposition. An interest group with more inefficient rents is also less likely to favor an opportunistic agreement. The model offers a novel explanation for why studies on the impact of campaign contributions on policymaking find mixed evidence. Besides, my results shed new light on existing empirical findings by showing that interest groups' long-term loyalty does not necessarily imply an ideological alignment, and interest groups' opportunism can be a signal of effective institutions. Lastly, I study the impact of emergencies, weak political parties, and the interest group's entry costs on the interest group's best agreement.
The third chapter delves into situations in which new information, economic shocks, or geopolitical changes frequently create an opportunity for reforms. The incumbent, however, can use such opportunities to pass partisan reforms that are not beneficial to the median voter. And indeed, the opposition frequently promises to repeal those reforms claiming that they simply represent partisan overreach. Are these repeals a salutary filter of the incumbent's partisan policies, or are they rather a cynical electoral strategy even when the reforms are welfare-improving? We investigate this question in an informational model of electoral politics. There exist two types of reforms: the common interest one, which is unanimously liked, and the one, which is beneficial only to the incumbent. The reform type is known to the parties but not to the voter. We show that when the parties' benefit from the common interest reform is sufficiently high, the electoral competition leads parties to provide perfect information to the voter. When the parties' benefit from the common-interest reform is below a certain threshold, all equilibria feature the opposition party reacting to the attempts at common-interest reform with a promise of repeal. Such inefficient repeals weaken the information that the voter obtains from observing a promise of repeal. We show that incumbents respond to this in two ways: by foregoing common interest reforms (gridlock) and/or by doubling down on partisan reforms.
