Adverse Selection in Distributive Politics

Abstract

Many policy reforms involve gains for some voters at a cost borne by others, and voters may be asymmetrically informed about who gains and loses. This paper shows that the interaction of distributive politics and asymmetric information generates an adverse selection effect: when an uninformed voter contemplates many other voters supporting a policy, she suspects that she is unlikely to benefit from it. This suspicion induces voters to reject policies that would be selected if all information were public. We identify a form of "negative correlation" that is necessary and sufficient for this electoral failure.

Keywords: Distributive Politics, Information Aggregation, Polarization

JEL Classification: D7