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

Philipp an de Meulen and Christian Bredemeier

No 336, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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.

Keywords: Political economy; asymmetric information (search for similar items in EconPapers)
JEL-codes: D72 D82 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:336

DOI: 10.4419/86788388

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