A Model About Electoral Volatility and Political Parties 1

Kurt Annen 2, Simon Hug3

Abstract

In Schumpeter's procedural definition of the democratic method, competitive elections are key. Around the world, however, in several countries considered to be democracies such elections are held, nevertheless, ``government for the people,'' to use Abraham Lincoln's phrase, is not ensured. We propose a game-theoretic model in which over-lapping generations of politicians may use political parties as commitment devices not to exploit citizens in excessive rent-seeking. Thus, the model offers a novel way to study the last-period effect of political leaders and suggests an endogenous mechanism how political novices may rein in rent-seeking politicians in their last-term. Implications from this model suggest that institutional mechanisms to remove leaders from office are central in allowing for commitment to policies promised in the election campaign, and, by the same token, they reduce electoral volatility. Thus, our model suggests that there are important institutional differences among electoral democracies that need to be taken into account in order to assess the effect of democracies on both economic and political outcomes. We provide some suggestive empirical evidence supporting our model.


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