Misspecified Politics and the Recurrence of Populism
Gilat Levy, Ronny Razin, Alwyn Young
American Economic Review · 2022 · Volume 112 · Issue 3
Abstract
We develop a dynamic model of political competition between two groups that differ in their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that policy cycles must arise and that simple world views—which can be interpreted as populist world views—imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to overestimate the positive impact of a few extreme policy actions.
Keywords
Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, Illegal Behavior and the Enforcement of Law
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