Ruhr Economic Papers

Ruhr Economic Papers #336

A Political Winner’s Curse: Why Preventive Policies Pass Parliament so Narrowly

by Philipp an de Meulen and Christian Bredemeier

RWI, TU Dortmund, 05/2012, 25 S./p., 8 Euro, ISBN 978-3-86788-388-7 DOI: 10.4419/86788388

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Abstract

Preventive policy measures such as bailouts often pass parliament very narrowly. We present a model of asymmetric information between politicians and voters which rationalizes this narrow parliamentary outcome. A successful preventive policy impedes the verification of its own necessity. When policy intervention is necessary but voters disagree ex-ante, individual politicians have an incentive to loose the vote in parliament in order to be rewarded by voters ex-post. Comfortable vote margins induce incentives to move to the loosing fraction to avoid this winner’s curse. In equilibrium, parliamentary elections over preventive policies are thus likely to end at very narrow margins.

JEL-Classification: D72, D82

Keywords: Political economy; asymmetric information

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