Credibility and Policy Convergence in a Two-party System with Rational Voters

The traditional approach to modeling political parties' behavior, based upon the contribution of Anthony Downs (1957), assumes that the parties' unique objective is to win elections: thus, they maximize their popularity. The crucial implication of this assumption for a two-party system is that if the two parties have the same information about voters' preferences, full convergence of policies results from electoral competition. This is the crucial implication of the "median voter theorem. " ' More generally, it may be argued that different parties are motivated differently because they represent different constituencies. Parties may not care only about winning elections per se, but also about the quality of the policies resulting from an election. In this case the candidates of the two parties view winning an election not only as a goal per se, but also as a means of implementing a better policy for their respective constituencies. This paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected, but also about which policy to implement, once elected. The dynamic inconsistency arises as follows: the parties have an incentive to announce convergent platforms to increase their chances of election. However, if the elected party is not committed to its electoral platform, it has an incentive to follow its most preferred policy rather than the policy announced in its platform. If voters are rational, they account for this incentive. Thus, in general, in a one-shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible, the two parties follow their most preferred policies, and the voters rationally expect this outcome. Full convergence of parties' platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election. Thus, these results differ from the existing literature on "ideologically motivated" politicians (for instance, Donald Wittman, 1977, 1983; Randall Calvert, 1985), which implicitly assumes the possibility of binding commitments to electoral platforms. Complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game. In fact, if the candidates have concave objective functions, the welfare-maximizing policy rule implies a complete convergence of parties' policies. However, this cooperative, and agreed-upon policy, may or may not be sustainable as a subgame-perfect equilibrium depending on parameter values; in particular it depends on the discount rates of the two parties, the degree of polarization of their preferences, and the relative popu*Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, PA 15213, and National Bureau of Economic Research, Cambridge MA, 02138. This paper is based upon a chapter of my unpublished doctoral dissertation at Harvard University. I am greatly indebted to Jeffrey Sachs for directing my attention toward these issues and for many conversations. I also wish to thank Andrew Abel, Dilip Abreu, Olivier Blanchard, Ramon Caminal, Andrew Caplin, Alex Cukierman, Morris Fiorina, Benjamin Friedman, Herschel Grossman, Howard Rosenthal, and the referees for very useful comments. The responsibilitv. Af anv n mtnkieis Af cAlrirp nfnlv mine The result of policy convergence in a two-party system is more general than the "median voter theorem. " For discussions of convergence results not at the median, see John Ledyard, 1984; Peter Coughlin, 1984; Coughlin and Shmuel Nitzan, 1981; Melvin Hinich, 1977. For earlier work on spatial competition see Richard McKelvey, 1975; Hinich, Ledyard, and Peter Ordeshook, 1972, 1973, and the references quoted therein. The present paper focuses on the result of convergence rather than on the "median voter theorem" per se.