Optimal Electoral Timing: Exercise Wisely and You May Live Longer
43 Pages Posted: 10 May 2006 Last revised: 5 Oct 2007
Date Written: October 3, 2007
The timing of elections is flexible in many countries. We study this optimization, by first creating a Bayesian learning model of a mean-reverting political support process. We then explore optimal electoral timing, modeling it as a renewable American option with interacting waiting and stopping values. Inter alia, we show that the expected longevity is a convex-then-concave function of the support. Finally, we calibrate our model to the post 1945 Labour-Tory U.K. rivalry. Our story quite well explains when the elections were called. We also show that election options approximately double the expected time in power in the current streak.
Keywords: American option, optimal stopping
JEL Classification: D72, D81, G13
Suggested Citation: Suggested Citation