Stephane Wolton

Rational Ignorance, Elections, and Reform

We analyze a model of electoral competition with costly political communication. A representative voter elects one between two candidates, who compete by choosing (1) whether or not to commit to a reform (whose implementation is costly for them) and (2) how intensely to campaign on the issue they choose. Candidates have private information regarding their competence and the reform is benecial to the voter only if implemented by a competent politician. Elections thus serve the dual purpose of screening competent candidates and providing incentives to carry out welfare-improving change. The key innovation is that a candidate successfully communicates her platform to the voter only if both exert eort as in Dewatripont and Tirole (2005). After characterizing the conditions for a separating equilibrium to arise, we show that reforms are implemented with positive probability and, if implemented, benet the voter only if the voter’s gain from policy changes is in an intermediate range. When this gain is too small, the voter cannot provide enough electoral incentives. When the gain is too large, he faces the risk of policy failure. Moreover, benecial reformsThis paper studies how economic conditions affects the likelihood of reform. Using a novel theory of the electoral process where successful communication of candidates’ platforms requires effort from both candidates and a representative voter, we show that candidates’ platform choices depend critically on the voter’s gain from reform. When her gain from reform is low, no candidate proposes policy change; when it is high, non-competent politicians run on harmful reformist platform. In line with empirical findings, our model rationalizes why reforms occur rarely in good and bad times and why crises can lead to delayed and botched reforms. JEL Classification: D72, D78, D83.

Mass Purges: Top-Down Accountability in Autocracy

This paper contends that mass purges are a salient method of top-down accountability used by totalitarian regimes to increase party performance and shape party membership. In our theoretical framework, party members work on independent projects. Their fate, however, is linked through the purge, and a member’s effort depends on the activism of all others via what we call the pool size effect. In turn, the autocrat’s incentive to purge depends on the informativeness of different performance indicators, a function of all members’ effort via what we term the pool makeup effect. These novel pool effects emerge from the many (party members) to one (autocrat) accountability problem faced by the principal. Our approach also highlights how violence affects top-down accountability in autocracy. Greater intensity of violence increases effort, but can impede selection. The autocrat thus cannot escape a trade-off between love (less unity) and fear (more activism).

Political Conflicts, the Role of Opposition Parties, and the Limits on Taxation

In democratic systems, the rich have diverse channels through which they can influence policies. In a model of taxation, I study the capacity of the rich to constrain the fiscal choice of a government by starting a costly political conflict (for example, a press campaign), which imposes a cost on the government and influences the fate of the government’s fiscal plan. I show that the government’s tax proposal depends critically on the marginal disutility of taxation for the rich. This approach provides a new rationale for the empirically documented U-shaped relationship between inequality and taxation. It also highlights a new role for opposition parties. By agreeing to bear part of the cost of a political conflict in exchange for compromise, the opposition makes Pareto-improving arrangements possible.

Electoral Ambiguity and Political Representation

We introduce a Downsian model in which policy-relevant information is revealed to the elected politician after the election. The electorate benefits from giving the elected politician some discretion to adapt policies to his information. But limits on discretion are desirable when politicians do not share the electorates policy preferences. Optimal political representation generally consists of a mixture of the delegate (no discretion) and trustee (full discretion) models. Ambiguous electoral platforms are central to achieving beneficial representation. Nevertheless, electoral competition does not ensure optimal representation: the elected politicians platform is generally overly ambiguous. While our theory rationalizes a positive correlation between ambiguity and electoral success, it shows that the relationship need not be causal.

Rule Versus Discretion: Regulatory Uncertainty, Firm Investment, and Bureaucratic Organization

As markets evolve, new regulatory concerns emerge. In response, policy makers institute new requirements for private businesses. Because they impose costs and generate uncertainty, these requirements may deter firm investment. To reduce regulatory uncertainty and favor investment, a principal can choose a rule-based regulatory framework. However, unlike discretion, rules do not adapt to circumstances and are thus inefficient. Using a micro-founded model, we uncover circumstances under which the ex ante certainty provided by a rule dominates the ex post efficiency provided by delegation to an unbiased agent. We also establish when delegating to a biased agent is optimal for a policy maker. Our main results highlight that the anticipated economic responses of firms can indirectly influence the organization of the bureaucracy. As such, any attempt to evaluate firms’ direct influence in the rule-making process—through lobbying or information disclosure—needs to establish the proper counterfactual that account...

Citizens United: A Theoretical Evaluation

Following the 2010 U.S. Supreme Court’s decision on Citizens United v FEC, interest groups engaging in outside spending can receive unlimited contributions from unions and corporations. Critics of the decision have rejected the notion, espoused by the majority opinion, that outside spending does not corrupt or distort the electoral process. Fewer, however, have examined the decision’s implications under the Court’s assumptions. Using a game-theoretic model of electoral competition, we show that informative outside spending from a group whose policy preferences are partially aligned with the electorate may reduce voter welfare. This negative effect is more likely to arise when the value of the interest group’s information is large, or congruence between voters and the interest group is high. Further, the regulatory environment produced by the Court’s decision is inefficient: the electorate would be better off if either outside spending were banned or coordination between candidates and the interest group allowed.