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Democracy, Populism, and (Un)bounded Rationality

CentER Discussion Paper Series No. 2009-10

37 Pages Posted: 5 Feb 2009 Last revised: 2 May 2009

Johannes Binswanger

University of St. Gallen

Jens Prufer

Tilburg University - CentER; Tilburg University - Department of Economics; Tilburg University - Law and Economics Center (TILEC)

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Date Written: April 29, 2009

Abstract

In many instances, both voters and politicians are imperfectly informed about which policies are optimal. We analyze politicians’ policy choice in such situations. A distinctive element of our analysis is that we investigate how the strategic sophistication of voters’ beliefs about politicians’ behavior affects policy choice. This provides a novel approach in political economy that leads to a number of important insights. We show that these beliefs determine the strength of self-serving politicians’ incentives to engage in populism. Surprisingly, limited strategic sophistication of voters weakens politicians’ incentives to pander to public opinion. The reason is that politicians know that such voters expect them to choose a policy that is not perfectly pandering to public opinion. Furthermore, when comparing the welfare ranking of different constitutional regimes, we find that limited strategic sophistication of voters makes indirect democracy relatively more attractive compared to the case of full strategic rationality – and often more attractive than alternative constitutional regimes.

Keywords: Imperfect information, beliefs, strategic sophistication, democracy, populism, accountability, experts

JEL Classification: D72, D78, D83

Suggested Citation

Binswanger, Johannes and Prufer, Jens, Democracy, Populism, and (Un)bounded Rationality (April 29, 2009). CentER Discussion Paper Series No. 2009-10. Available at SSRN: https://ssrn.com/abstract=1337937 or http://dx.doi.org/10.2139/ssrn.1337937

Johannes Binswanger (Contact Author)

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000
Switzerland

Jens Prufer

Tilburg University - CentER ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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