Repeated Elections and the Persistence of Inefficient Policies

Research Seminars
Academic Areas Economics and Public Policy
Parikshit Ghosh, Associate Professor of Economics, Delhi School of Economics
October 21, 2013 | 3:00 PM - 4:30 PM | Monday
AC 2 Mini Lecture Theatre (MLT), Hyderabad, India
For ISB Community
We introduce an electoral model with two novel features. First, long lived voters can vote repeatedly on ballot proposals for introducing a new policy to replace the status quo. Second, voters’ short term payoffs change over the course of their lives, either in a deterministic or stochastic manner. Even if the new policy generates higher lifetime utility for all voters compared to the status quo, it will have a strictly positive probability of being defeated in any given round if enough voters face short term losses. Moreover, there exist other stochastic processes over policy adoption that Pareto dominate the one arising in equilibrium. Allowing back and forth switches between the two policies gives rise to policy persistence, and under some conditions, more frequent elections create more inefficient outcomes. We discuss several applications, including social security, universal health care, unemployment assistance and technological change.
Authors: Parikshit Ghosh and Rohini Somanathan