Creating Incentives and Selecting Good Types Revisited ∗

The typical rational account of elections involves standard-setting: voters deciding to retain or replace an incumbent politician, based on whether the incumbent’s performance meets a particular standard. While there is consensus that voters set standards, there is considerable debate about how voters determine which standard to apply. There are two views. The first is that voters set standards for the purpose of creating incentives. The second is that voters set standards for the purpose of selecting good types, i.e., that voters set standards for the purpose of selecting better performing politicians in the future. Proponents of this latter view argue that, if candidates differ from one another in ways that are relevant to voters’ future payoffs, rational voters can only set standards for the purpose of selecting good types—that is, incentives are created only as a by-product of voters setting standards for the purpose of selecting good types. This has become the conventional wisdom in the literature. This paper challenges this viewpoint: We show that, even in the presence of candidate heterogeneity, rational voters may set standards for the direct purpose of creating incentives for politicians. Thus, voters can set standards both for the purpose of creating incentives and for the purpose of selecting good types. ∗Our thinking about this subject has been greatly influenced by extensive conversations with Dimitri Landa. We have also benefited from the comments of Adam Meirowitz, David Myatt, Andrew Rehfeld, Rainer Schwabe, and seminar audiences at Arizona State, the University of Chicago, the University of Rochester, the Annual Meetings of the Midwest Political Science Association, and the World Congress of the Game Theory Society. This research was supported by NSF grants SES-0819152 (Bueno de Mesquita) and SES-0819200 (Friedenberg). In addition, Friedenberg thanks New York University and University College London for their hospitality. †Harris School of Public Policy Studies, University of Chicago, email: sashwort@uchicago.edu ‡Harris School of Public Policy Studies, University of Chicago, email: bdm@uchicago.edu. §W.P. Carey School of Business, Arizona State University, email: amanda.friedenberg@asu.edu The typical rational account of elections involves standard-setting: voters deciding to retain or replace an incumbent politician, based on whether the incumbent’s performance meets a particular standard. While there is consensus that voters set standards, there is considerable debate about how voters determine which standard to apply. Traditionally, the literature focused on the idea that voters set standards to create incentives for politicians—i.e., to achieve what Pitkin (1967) calls accountability. As Pitkin writes: The point of holding [a politician] to account after he acts is to make him act in a certain way—look after his constituents, or do what they want. (1967, p. 57) This is an ex ante rationale for standard setting: Voters use a particular standard because committing to that standard—before the politician has acted—gives the politician incentives to take actions that benefit the voters. We refer to this rationale as setting a standard for the purpose of creating incentives. (For models with standard setting for the purpose of creating incentives, see Barro (1973), Ferejohn (1986), Austen-Smith and Banks (1989), Seabright (1996) , Persson, Roland and Tabellini (1997), Persson and Tabellini (2000), and Shi and Svensson (2006), among others. ) A more recent literature focuses on voters setting standards for the purpose of obtaining better performing politicians in the future. When a politician’s past performance rises above a particular standard, voters may believe that the politician is more likely than alternative candidates to provide good outcomes in subsequent terms. That is, voters may believe that a politician’s past performance reveals information about her future performance, and so a politician who performs well in the past is more likely to perform well in the future. This is an ex post rationale for standard setting: Voters use a particular standard because, at the time of election, the standard maximizes their future expected payoffs, conditional upon the observed outcome. Following Fearon (1999), we refer to this rationale as setting a standard for the purpose of selecting good types. (For models with standard setting for the purpose of selecting good types, see Banks and Sundaram (1993, 1998), Alesina and Rosenthal (1995), Canes-Wrone, Herron and Shotts (2001), Maskin and Tirole (2004), Ashworth (2005), Besley (2006), Smart and Sturm (2006), Myerson (2006), Ashworth and Bueno de Mesquita (2006, 2008), Besley and Smart (2007), Canes-Wrone and Shotts (2007), Fox (2007), Gordon, Huber and Landa (2007), and Fox and Shotts (2009), among others. ) In an important paper, Fearon (1999) argues that, if candidates differ from one another in ways that are relevant to voters’ future payoffs, rational voters can only set standards for the purpose of selecting good types. This is not to say that voters fail to create incentives.