In uncertainty we trust: a median voter model with risk aversion
Pavel A. Yakovlev, Duquesne University, Department of Economics and Quantitative Sciences, Pittsburgh, USA
The principal-agent problem and uncertainty are some of the key factors affecting financial and political markets. Fear of the unknown plays an important role in human decision making, including voting. This article describes a theoretical model where voter risk aversion towards uncertainty gives political incumbents a significant advantage over their challengers, exacerbating the principal-agent problem between voters and legislators. The model presented predicts that a rise in voter uncertainty concerning the challenger allows the incumbent to deviate from the median voter's policy preference without losing the election. This model reconciles the paradoxical coexistence of ideological shirking and high incumbent reelection rates without abandoning the elegant median voter framework.
Keywords: ideology, incumbency advantage, shirking, median voter, risk aversion, principal-agent problem
Year: 2011 | Volume: 35 | Issue: 4 | Pages: 465 - 477
Full text (PDF) | E-mail this article | Download to citation manager
IV / 2011
Book review: Hidden public expenditure-Tax expenditures: necessity or currying favour with the voter? (Skrivena javna potrošnja – Porezni izdaci: potreba ili udvaranje biračima?) / Vjekoslav Bratić. Zagreb: Institute of Public Finance, 2011