Political cycles and policy convergence

Abstract

This paper presents a model of elections with heterogeneous voters and asymmetric information about the incumbent's type, in which signaling in electoral years leads to policy convergence. Politicians face both ideological and opportunistic motivations while choosing a policy. Moderate incumbents implement policies that balance the costs of deviating from their preferred policy and the gains from their increased chances of reelection. Using standard equilibrium refinements, conditions are obtained under which the unique equilibrium is separating in policies. Under certain conditions, risk averse voters benefit from the lower dispersion of policies during electoral years.