Voters and the Trade-Off between Policy Stability and Responsiveness

Abstract

Policy making involves a trade-off between policy responsiveness and policy stability. Little is known, however, about how this trade-off is resolved in representative democracies. Anecdotal evidence suggests that policies not only do not respond efficiently to changing circumstances but also change unnecessarily with political turnover. We study this trade-off theoretically. In our dynamic election model, a voter and two parties have distinct ideologies, but their policy preferences reflect a common trade-off between the need to adapt the policy to a changing state and a desire for policy stability captured by a cost of policy change. In each period, the voter observes a signal about the state and chooses which party to elect. The appointed party observes the realized state and decides whether to leave the current policy in place or change it. We show that the voter elects more often the party whose ideology is aligned with the status quo. Hence, consistent with the empirical evidence, a liberal (conservative) incumbent is more likely to be reelected after having implemented a liberal (conservative) policy. Expecting this electoral bias, the party in office tends to be less responsive to the state and instead tilts policy making towards its ideology in order to be reelected. As a result, as compared to a world without electoral pressures, policies underrespond to real shocks and overrespond to political turnover. We study how the resulting excessive policy inertia and inefficient policy changes vary with the cost of policy change, voter's information, as well as ideological polarization and office motivation of the political parties.