Public Policy Investment: Risk and Return in British Politics
Forthcoming, British Journal of Political Science
58 Pages Posted: 1 Aug 2011 Last revised: 6 Jun 2012
Date Written: 2011
We set out a theory of political capital investment to explain how democratic governments emphasize specific public policies. Our claim is that governments seek to enhance their chances of re-election by managing their portfolio of public policies in a calculated manner. In this way, government is like an investor making choices about risk to yield return on its investments of political capital. We introduce a quantitative method for assessing risk and return in government policy portfolios. An active investment strategy emerges as an element of statecraft; stability in returns is crucial and governments assume significant risk to maintain it. Do the public reward returns to political capital? Do they punish risky policy investments? How do the returns to policy investment guide political management and statecraft? We address these questions through time-series analyses of risk and return in the case of Britain between 1971-2000. Our findings reveal that risk and return predict election outcomes and that returns, risk profiles and the uncertainty in public signals influence the prioritisation of policies.
Keywords: policy attention, policy priorities, political risk, public opinion, asset pricing
JEL Classification: D72
Suggested Citation: Suggested Citation