Electoral competition, control and learning

This article explores an agency model in which voters learn about both an incumbent and an opponent. They observe the incumbent's policy record and update their beliefs about his opponent via a campaign. Although the former is relatively more informative, it can be costly for the voter to learn about the incumbent from her policy record. This is because policy reforms, which allow a voter to learn an incumbent's ability, are risky and can leave the voter worse off. Then the voter may prefer the incumbent to take safer actions. The efficient level of reform - the one preferred by the voter - balances the value of learning with the expected policy costs/benefits. In a world where the opponent's campaign is uninformative, reform can be too low due to the incumbent's fear of failure. Or it can be too high: the incumbent may gamble on success. This article shows that the presence of an opponent who can reveal information via a campaign exacerbates these inefficiencies. An incumbent who anticipates the effect of an opponent's campaign on voter beliefs is more likely to make inefficient policy choices. Further, such campaigns can lead to an overall welfare loss when they reveal little about the opponent's ability and yet have an impact on the incumbent's policy choice.