Dynamic Policy Competition, Ideological Polarization and the Value of Veto Rights
Year: 2012
Type: preprint
Abstract: In this paper, we show that --- when policy motivated parties are competing in a dynamic environment and care about both present and future policies --- veto rights are more valuable with more polarized parties. In particular, we analyze a setting with one institutional veto holder and two policy-motivated parties that alternate in office. The transition of power between periods is determined by a general Markov process that allows for incumbency advantage or disadvantage, and the policies implemented are two-dimensional. We define parties' polarization as the ideological disagreement between parties, and parties' extremism as the ideological disagreement between each party and the veto player. These two measures do not coincide when policies are multidimensional and have a distinct impact on strategic incentives. In each period of an infinite horizon, the party in power proposes a policy change which is implemented only with the consent of the veto player. If the veto player rejects the policy change, the status quo policy is implemented. The policy implemented at the end of each period carries over as the status quo policy in the following period and, as such, it represents a dynamic linkage between periods. We show that an incumbent's decision regarding which policy to implement is driven by two forces. The first, standard, force is a tendency to implement policies close to the incumbent's bliss point to maximize the current utility. The second force is germane to the dynamic environment: forward looking incumbents have an incentive to implement policies close to the veto player's bliss point in an attempt to constraint the future policies implemented by the other party, when in office. We show that this latter force grows as polarization increases, with the implemented policies moving closer to the ideal point of the veto player. On the other hand, as extremism increase, the short term incentives dominate and the implemented policies move away from the ideal point of the veto player.
Source: SSRN Electronic Journal
Authors: Salvatore Nunnari, Jan Zápal
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1581298289