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Voter Rationality and Politician Incentives



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Voter Rationality and Politician Incentives Exploiting Luck in Indian and Pakistani Elections1 Madiha Afzal Yale University October 20 2007 Preliminary Draft Abstract Recent empirical work on US elections argues that any relationship between exogenous shocks and election outcomes is evidence of voter irrationality In contrast I develop a theoretical framework which highlights two di erent mechanisms underlying politician behavior e ort and corruption which relate exogenous shocks to election outcomes under the assumption of complete voter rationality Although corruption is generally considered the motivation underlying politician behavior I show that the more benign e ort story also leads to the same predictions on electoral outcomes In addition the model shows that the relationship between politician behavior and thus probabilities of re election and rainfall can vary with the underlying political environment of incumbency advantage or disadvantage I empirically examine the relationship between politician re election and rainfall using data from both Indian and Pakistani parliamentary elections The results show that rainfall is signi cantly positively related to re election in times of incumbency advantage and negatively related to re election in times of incumbency disadvantage in both countries consistent with the theoretical framework Furthermore evidence using development fund spending and politician occupations shows that the results are consistent with the e ort story JEL Classi cation D72 O1 1 Email madiha afzal yale edu I thank Mark Rosenzweig Chris Udry Rohini Pande Ebonya Washington as well as Prashant Bharadwaj Bjoern Bruegemann A V Chari Rahul Deb Seema Jayachandran Fabian Lange Jeremy Magruder Ted Miguel and Salik Nur for helpful comments and suggestions I also thank participants at the Yale Development Lunch UC Berkeley Development Lunch the Leitner Political Economy Workshop and the Paci c Development Conference for feedback and encouragement All errors are my own 1 1 Introduction Classical democratic theory states that voters collect information on party platforms policy pronouncements legislative voting etc on all candidates and cast their vote for the candidate who o ers them the best package However collecting such information on each candidate is costly and voters know that policy pronouncements are non binding The alternative approach proposed by the retrospective voting model places less of an information demand on voters and argues that their decision rule is based on readily available information2 This information is simply the performance of the incumbent while in power If his performance is satisfactory voters will re elect the incumbent if it is unsatisfactory they will vote for the opponent This leads us to the classic political agency problem voters want to re elect competent leaders but cannot directly observe e ort and ability In voting retrospectively they should respond to economic indicators that re ect performance However they should also lter out exogenous factors such as rainfall which a ect economic outcomes but lie beyond the politician s control An inability to do so raises the probability of re electing lucky but incompetent incumbents and results in a lack of political accountability A number of recent working papers notably Wolfers 2007 Achen and Bartels 2004 and Healy 2006 study data from US elections to show that politicians are re elected in lucky times and voted out in unlucky times Wolfers relates oil price shocks to US governors probability of re election while Achen and Bartels show that there is an electoral response to droughts and oods in US presidential elections and Healy uses individual voting data to show that weather a ects voting behavior through income3 All three papers argue that any relationship between exogenous shocks and electoral outcomes is evidence of voter irrationality However this literature relies on the critical assumption that there is no response by politicians to these exogenous shocks As soon as there is any interaction of an exogenous shock with politician behavior we can no longer conclude that a relationship between shocks and politician re election is evidence of voter irrationality I develop a theoretical framework which highlights two possible mechanisms e ort and corruption which relate politician behavior to exogenous shocks speci cally rainfall shocks in the South Asian context under the assumption of complete voter rationality I also formalize the notion that voter behavior only changes because politician behavior changes speci cally voters vote out the politician if he behaves badly enough that a randomly selected 2 See Key 1966 for seminal work on this topic also see Fiorina 1981 In similar vein Bertrand and Mullainathan 2001 show that CEO pay responds to exogenous factors that a ect his company s industry Social psychology experiments also show that subjects in experiments aiming to assess competence systematically fail to take su cient account of background or environmental factors 3 2 challenger is deemed better than him4 In the e ort story rainfall a ects the politician landowner s own farm and therefore changes his incentives to put in farm labor versus political e ort In the corruption story rain a ects the constituents aggregate income and changes the politician s incentives to steal from them The corruption and e ort stories yield analogous results for the direction of the e ect on politician incentives but the e ort story is more benign in terms of its e ect on constituents welfare In my empirical work I test whether the e ort story is consistent with politician behavior in the South Asian context but cannot directly test for the corruption story The theoretical model shows that the e ect of exogenous shocks on both e ort and corruption can vary with the underlying political environment Speci cally I show that politicians increase e ort or lower corruption when there is higher rainfall a good shock if there is a high enough incumbency advantage and they lower e ort or raise corruption when there is higher rainfall in times of incumbency disadvantage A good rainfall shock in times of incumbency advantage serves as an income shock and politicians are able to undertake better actions in the political arena However in times of incumbency disadvantage a rainfall shock has a substitution e ect into worse politician behavior More generally one can argue that politician incentives vary in


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