Policy Experimentation with Repeated Elections

When does an incentive exist for an incumbent to experiment with a risky reform policy in the presence of future elections? To address this question, we study a dynamic game between two political parties with heterogeneous preferences and a voter. The voter elects a party that then chooses a policy from among a safe alternative with known payoffs and two risky ones with initially unknown expected payoffs. We show that under infrequent elections, the incumbent party experiments with its preferred reform policy even if its outlook is not promising, whereas with overly frequent elections, the incumbent stops experimentation prematurely because an imminent election increases the potential to lose power if he undertakes risky reform. While infrequent elections are not ideal for the voter, the degree of inefficiency from overly frequent elections is large enough that voters are worse than under a dictatorship. Efficiency can be restored by combining frequent elections with a voter’s strategy that advantages the incumbent party.