McDowall, Ana
(2015)
Essays on dynamic political economy.
PhD thesis, London School of Economics and Political Science.
Abstract
Many of the problems faced by the agents to whom we delegate public decisions involve dynamic considerations. Whether it is a public official whose reputation is on the line, or a politician who faces repeated elections or who worries about how successors will alter his legacy, decisions today are made with attention to what consequences may come tomorrow. In this dissertation, I discuss dynamic problems in political economy. The common thread to all three essays will be that decision makers face dynamic incentives to protect their own interest because their policy choice today affects tomorrow's decision environment and, as a result, how other agents (the public, or rival parties) will behave further down the line. The first chapter looks at how alternation in power of (pro-rich and pro- poor) partisan political groups affects incentives to implement short and long run redistributive policies. I identify a powerful incentive for both groups to make income-equalising investments as a form of insurance against takeover by the opposing group. The second chapter studies the pressures on an appointed regulator of some risky activity in society, who cares about protecting his reputation. The regulator is held to account by the general public, which use a heuristic approach to estimating risks and assessing the performance of the regulator. The public official will trade off trying to align his policy record with current beliefs and managing how beliefs change through observing the risky activity. In the third chapter, I consider parties that compete over a one-dimensional ideological policy space but face uncertain electoral outcomes. I find that if elections are systematically biased against the incumbent, this leads to higher ideological polarisation than a bias of the same size in favour of the incumbent, because it lowers the value of winning. I endogenise incumbency biases with a model where voters learn about candidates' competence.
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