economy, including individuals, firms, interest groups, non-electorally dependent (entrenched) bureaucrats, foreign leaders, the WTO and more’ (ibid, pp.139-140). It is important to note that while many scholars before Duch and Stevenson had tacitly examined the political economy outcomes of different ratios of elected and unelected actors (e.g. Cameron, 1978; Katzenstein, 1985; Rodrik, 1998) the explicit formalization of this ratio was first undertaken by Duch and Stevenson. The ratio of EDDs/NEDDs has clear testable implications within the competency model proposed by Duch and Stevenson. Namely, as the ratio of EDDs/NEDDS increases/decreases, the competency/exogenous shocks variance increases/decreases, thereby increasing/decreasing altering the competency signal voters receive, and hence increasing/decreasing the magnitude of the economic vote.

Duch and Stevenson (ibid, pp.131-209, 287-336) show that the EDD/NEDD ratio, as well as the way it interacts with electoral institutions (which affect voters’ strategic considerations) is used by voters to deduce the competency of elected officials and is robustly associated with the magnitude of the economic vote in the manner anticipated by the theory. Therefore the EDD/NEDD ratio provides a potentially useful independent variable of interest that can predict the magnitude of retrospective evaluation of incumbents; not just for economic policy but also, possibly, for rent extraction.

Before introducing the formal modeling framework, it is essential to outline how the use of the EDD/NEDD ratio, in trying to account for variation in rent extraction, differs from its original use by Duch and Stevenson (2008). Like the original Duch-Stevenson model, the theoretical framework proposed, enriches rational voters’ utility function to take into account context (the EDD/NEDD ratio) and thus anticipate voters’ ability to identify the competency of the incumbent. However, the theoretical framework differs in one critical respect: that, like most of the classical political economy literature, it is concerned with the ‘full equilibrium’ or _strategic effects_ of context on the voter-incumbent dynamic. That is, it is concerned with analyzing how changes in voter evaluation affect not only voter action, but also incumbent reactions. Thus, while the DuchStevenson model is decision-theoretic (concerned with showing how context influences the ability of voters to infer the competency of an incumbent), the proposed model goes a step further and examines not only how context influences voters, but how this then influences incumbents who anticipate the behavior of voters.

This theoretical extension builds naturally from the principal-agent (P-A) assumptions in much of the political economy literature<sup>7</sup> . Using a game theoretic rather than a decision theoretic approach has an important effect on the hypotheses derived, as well as their operationalization and subsequent testing. Given that most of the relevant P-A games are sequential – that is, the players move in turns – the most common solution concept used to solve such games is backward induction. This requires that the first player condition her actions by ‘looking down the decision tree’ and anticipating the consequences of her behavior on the actions of the second player. In the case of rent extraction, EDDs officials are hypothesized to set their level of rent extraction before the election, to take into account how increments in rents will adversely affect their re-election prospects (voter reaction in the second stage). Therefore, this context (EDD/NEDD ratio) determines the ratio of policy-makers who face this dilemma or are otherwise insulated from the electoral cost of rent extraction (NEDDs). It is therefore possible to develop specific predictions about how variation in the EDD/NEDD ratio will incentivize policy-makers in anticipation of voters’ reactions.

Specifically, this game theoretic set-up enables the derivation of two distinct hypotheses. Firstly, EDD policy-makers will be more reluctant to engage in rent extraction versus insulated policy-makers (although this result will only hold in democratic contexts); secondly, perception of rent extraction among voters regarding the overall level of ‘political’ rent extraction, will vary with the EDD/NEDD ratio (as a higher EDD/NEDD ratio will incentivize more policy-makers to desist from rent extraction in order to secure re-election). This two-stage test is a logical extension of the original focus of the Duch-Stevenson (ibid) and economic voting literature in general, and of the impact of context on the magnitude of voter reaction to incumbent behavior.

Ideally, it would also have been good if the operationalization and testing of the ‘voter component’ of the hypotheses derived by the model occurred in the same manner as Duch and Stevenson’s (2008) formalization. That is, using individual level survey data of voter perceptions of rent extraction before and after an election. However, due to the limited reliability of over time variation in perceptions of rent extraction noted

> 7 See Besley, (2006) for an introduction to the use of P-A in political economy analysis.

4