A Political Theory of Populism

A Political Theory of Populism

Daron Acemoglu (MIT and NBER)

Georgy Egorov (Northwestern-Kellogg and NBER)

Konstantin Sonin (New Economic School and CEPR)

NES 20th Anniversary Conference

December 15, 2012

Puzzle

Several policies that theory explains/predicts

policies favored by median voters

policies favored by the ruler/the powerful/the elite

first-best policies

combination of the above

But it falls short at explaining:

over-redistribution

over-provision of public goods (?)

generally, policies “too left” for the median voter

Common in populist regimes in Latin America and

elsewhere 3 Acemoglu, Egorov and Sonin "A Political Theory of Populism"

What is populism?

“If we define populism in strictly political terms–as the presence of […] a charismatic mode of linkage between voters and politicians, and a democratic discourse that relies on the idea of a popular will and a struggle between `the people’ and `the elite’–then Chavismo is clearly a populist phenomenon.”

Hawkins (2003)

“Populist regimes have historically tried to deal with income inequality problems through the use of overly expansive macroeconomic policies. These policies, which have relied on deficit financing, generalized controls, and a disregard for basic economic equilibria, have almost unavoidably resulted in major macroeconomic crises that have ended up hurting the poorer segments of society.”

Dornbusch and Edwards (1991)

Acemoglu, Egorov and Sonin "A Political Theory of Populism" 4

Our approach to populism

Definition of populism

Populism = {policies left of the median}

Questions

what explains these policies?

when should we expect to observe them?

Our approach

abstract away from particular implementations (over-redistribution, over-provision of public goods…)

focus on signaling character of political competition


Main result

Populism is a way for politician to persuade

voters he is not pro-elite (right-wing)

Even right-wing politicians may become

populists if electoral concerns are strong enoug

More populism if

office-motivated rather than policy-motivated

moderate and honest politicians are rare

“soft” term limits

uncertainty about hidden agendas


Literature

Signaling models of elections and prospective voting

Banks (1990), Harrington (1993), Besley (2005)

Recent models of “honest” (commitment-type) politicians: Callander and

Willkie (2007), Kartik and McAfee (2007)

our model: more tractable because signals are noisy

⇒ unique equilibrium, intuitive comp. statics

Models of “pandering”

Prendergast (1993), Morris (2001), Canes-Wrone, Herron, and Shotts

(2001), Maskin and Tirole (2004)

Left policies as fair response to corruption: Di Tella and MacCulloch

(2006)

Elite capture of democracy: Bates and La Ferrara (2001), Lizzeri and

Persico (2005), Padro-i-Miquel (2007), Acemoglu and Robinson (2008),

Acemoglu, Robinson, and Torvik (2010)

7 Acemoglu, Egorov and Sonin "A Political Theory of Populism"

Theory

Environment

One-dimensional policy space ℝ

Two groups of population

poor majority, ideal policy 𝛾𝑚 = 0 (median voter)

rich elite, ideal policy 𝛾𝑟 = 𝑏 > 0 (bias)

Two periods

Citizen 𝑖’s utility:

𝑢𝑖 𝑥1, 𝑥2 =

𝑢𝑚 𝑥1, 𝑥2 = − 𝑥𝑡 − 𝛾𝑚 22

𝑡=1, rich

𝑢𝑟 𝑥1, 𝑥2 = − 𝑥𝑡 − 𝛾𝑟 22

𝑡=1, poor


Politicians

Large pool of two types of politicians

share 𝜇: moderate, ideal policy 𝛾 = 𝛾𝑚 = 0

share 1 − 𝜇: right-wing (pro-elite), ideal policy 𝛾 = 𝛾𝑟 = 𝑏

Type is politician’s private info

Utility:

𝑣 𝑥1, 𝑥2 = −𝛼 𝑥𝑡 − 𝛾 2 2

𝑡=1+

𝑊𝐈 in office at 𝑡 +

𝐵𝑡 − 𝐶 𝐈 accepted bribe 𝑎𝑡 𝑡

Acemoglu, Egorov and Sonin "A Political Theory of Populism"

Timing

1. Politician at time 𝑡 = 1 chooses policy

𝑥1 ∈ ℝ

2. Citizens obtain noisy signal 𝑠 = 𝑥1 + 𝑧

3. Elections take place (median voter chooses

to keep or replace the incumbent)

4. Politician at time 𝑡 = 2 chooses policy

𝑥2 ∈ ℝ

5. Payoffs are realized


Assumptions

Noise 𝑧 has:

full support ℝ

c.d.f. 𝐹 𝑧 , p.d.f. 𝑓 𝑧

∀𝑧: 𝑓 −𝑧 = 𝑓 𝑧

𝑓 𝑧 cont. differentiable, 𝑧 > 0 ⟹ 𝑓′ 𝑧 < 0

Noise 𝑧 is sufficiently smooth: ∀𝑧:

𝑓′ 𝑧 <1

𝑏2

2+

𝑊2𝛼


Analysis

2nd period

Moderate politicians choose 𝑥2 = 0

Right-wing politicians choose 𝑥2 = 𝑏

Median voter wants to have moderate in period 2

Reelection strategy: Keep incumbent if and only if

Pr incumbent is moderate ≥ 𝜇


0 𝑏 𝑥2

1st period

Let moderate politicians choose 𝑥1 = 𝑚

Let right-wing politicians choose 𝑥1 = 𝑟

Then: In equilibrium, 𝑚 < 𝑟

Citizens’ equilibrium strategy:

Keep incumbent if and only if

𝑠 ≤𝑚+𝑟

2


𝑚 𝑟 𝑚 + 𝑟

2

reelection replacement

1st period policies

Probability of reelection after choosing 𝑥1 = 𝑥

𝜋 𝑥 = Pr 𝑥 + 𝑧 ≤𝑚 + 𝑟

2= 𝐹

𝑚 + 𝑟

2− 𝑥

Moderate politician maximizes max𝑥∈ℝ

−𝛼𝑥2 + 𝑊𝜋 𝑥 − 1 − 𝜇 𝛼𝑏2 1 − 𝜋 𝑥

Right-wing politician maximizes max𝑥∈ℝ

−𝛼 𝑥 − 𝑏 2 + 𝑊𝜋 𝑥 − 𝜇𝛼𝑏2 1 − 𝜋 𝑥

Assumptions guarantee second-order cond.


1st order conditions

Equilibrium is characterized by two equations:

−2𝛼𝑚 − 𝑊 + 1 − 𝜇 𝛼𝑏2 𝑓𝑟 − 𝑚

2= 0

−2𝛼 𝑟 − 𝑏 − 𝑊 + 𝜇𝛼𝑏2 𝑓𝑟 − 𝑚

2= 0

Denote 𝑝 = 𝑚 , 𝑞 = 𝑟 − 𝑏


Equilibrium

Trade-off between:

proximity to preferred policy

electoral chances


45°

moderate (m)

right-wing (r)

𝑏

0

Moderates’ reaction

Right-wing move left ⇒

easier for voters to confuse ⇒

moderates separate by moving left

Right-wings’ reaction

Moderate move left ⇒

harder to pretend to be moderate ⇒

right-wing give up and move right

CS: office and policy concerns

Trade-off between

proximity to preferred policy

electoral chances

Higher benefits from office ( 𝑊 ↑ ) or Lower policy concerns ( 𝛼 ↓ ):

both types move left

intuition: more important to get reelected

If 𝑊 = 0: 𝑚 < 0 < 𝑟, only moderates are populist

If 𝑊/𝛼 is large enough: 𝑚 < 𝑟 < 0, all populist


CS: likelihood of types

Suppose moderates become rarer ( 𝜇 ↓ )

moderates are more concerned about reelection

another politician will likely choose 𝑥2 = 𝑏

right-wing are less concerned about reelection

losing elections has less impact on policy 𝑥2

Endogenous polarization:

moderates move left, right-wing move right

more populism by moderates


First-period policy


𝑚 𝑟 𝑏 𝑥1 0

𝑊𝛼

Reelection/policy

concerns

𝑚 𝑟 𝑏 𝑥1 0

Share of moderates 𝜇

Moderates/right-wings

ratio

1

Importance of office

(relative to policy)

Right-wing Moderates

Moderates Right-wing

Equilibrium: summary

There exists a unique equilibrium

Moderate politicians choose populist policies:

𝑚 < 0

Right-wing politicians move left of their

preferred policies:

𝑟 < 𝑏

Right-wing may choose populist policies

(𝑟 < 0), but only if 𝑊 is large enough


Are the results driven by noise?

Consider normal distribution: 𝑧 ∼ 𝒩 0, 𝜎2

Then there exists 𝜎∗ such that:

if 𝜎 < 𝜎∗, then more noise ( 𝜎 ↑ ) increases biases (𝑚 and 𝑟 move left)

• too small 𝜎 ⇒ hard to confuse voters

if 𝜎 < 𝜎∗, then more noise ( 𝜎 ↑ ) decreases biases (𝑚 and 𝑟 move right)

• too large 𝜎 ⇒ very hard to influence signal voters get

Leftist biases are highest at 𝜎 = 𝜎∗

Noise makes model nice but does not drive results


Which noise maximizes bias?

𝜎∗ =𝑏

41 + 1 + 1 − 2𝜇

8

𝜋𝑒


Polarization and populism

Suppose bias of right-wing politicians

increases ( 𝑏 ↑ )

Then: if 𝑊 = 0 and 𝜎 is large, then

moderates choose more populist policies (𝑚

moves left)

higher 𝑏 increases the necessity to get reelected

As 𝑊 increases, this effect diminishes

𝑊 increases populism per se, 𝑏 adds little

opposite effect: easier to separate if 𝑏 is high


Term limits

How will welfare change if we impose term limits?

poor’s or total (≈ poor’s if poor are very numerous)

Three effects:

moderate politicians will stop choosing populist policies (good for all)

right-wing politicians will remove left bias (good for elite, likely bad for poor)

right-wing politicians are more likely in period 2 (good for elite, bad for poor)

Term limits are better if 𝑊/𝛼 is high

No term limits are better if 𝑊/𝛼 is low


Soft term limits

But: this only works if term limits are “hard”, not “soft”

If popularity helps overcome term limits ⇒

more incentives to gain popularity ⇒

populism may be higher, not lower

Soft term limits are very realistic:

Álvaro Uribe: changed constitution to run in 2006

Evo Morales: introduced new constitution in 2009

Hugo Chávez: amendment allowing him to avoid term limits in 2009

Daniel Ortega: constitutional court ruled term limits unconstitutional in 2009

In post-WWII Argentina, 1/25 presidents left because of term limits (as opposed to death or coups)


Corruption

Endogenize bias of right-wing politicians

Simplifying assumption:

all politicians have moderates’ preferences: 𝛾 = 0

honest politicians cannot be bribed, share 𝜇

corruptible politicians may be bribed, share 1 − 𝜇

Bias = outcome of bargaining with elite

only elite can bribe

if politician accepts bribe, he bears cost 𝐶 ≥ 0

politician’s share of surplus: 𝜒 ∈ 0,1


Corruption: timing

1. At time 𝑡 = 1, politician and elite bargain

and choose policy 𝑥1 ∈ ℝ

2. Citizens obtain noisy signal 𝑠 = 𝑥1 + 𝑧

3. Elections take place (median voter chooses

to keep or replace the incumbent)

4. At time 𝑡 = 2, politician and elite bargain

and choose policy 𝑥2 ∈ ℝ

5. Payoffs are realized


CS: corruption

If 𝐶 > 𝐶∗ = 𝑏2/ 𝛼 + 1 , no corruption in either period

If 𝐶 < 𝐶∗, corruptible politicians are bribed in both periods

Majority wants to choose honest politicians

Populism of honest politicians is higher if:

more benefits of holding office ( 𝑊 ↑ )

corrupt politicians have bargaining power ( 𝜒 ↑ )

honest politicians are rare ( 𝜇 ↓ )


Elite and corruption

Does elite benefit from ability to bribe?

Effects:

influence policy of corruptible politicians (+)

honest politicians become populists to show they are not corruptible (–)

corruptible politicians become more expensive to bribe, since electoral concerns push them into populist direction (–)

Elite may benefit from committing not to bribe (having 𝐶 prohibitively high)


Extensions

Two extremist types

Reputation and uncertainty


Two extremist types

So far: one extremist (pro-elite)

Consider three types of politicians:

moderate, prefers 𝛾 = 0, share 𝜇

right-wing extremist, prefers 𝛾 = 𝑏, share 𝜇𝑟

left-wing extremist, prefers 𝛾 = −𝑏, share 𝜇𝑙

Median voter prefers 𝛾𝑚 = 0

both extremist types are equally bad

Are the results robust?

Acemoglu, Egorov and Sonin "A Political Theory of Populism"

33

Two extremists types: strategy

Fix share of moderates 𝜇

Vary 𝜇𝑙 and 𝜇𝑟 holding 𝜇𝑙 + 𝜇𝑟 = 1 − 𝜇

fixed

Focus on case with 𝜎 sufficiently high

then we can prove existence and uniqueness


Two extremist types: results


−𝑏 𝑏 𝑥1

Only right-wing

extremists Moderates

Right-wing

Only left-wing

extremists

Left-wing

0

𝜇𝑟 − 𝜇𝑙

Two extremist types: summary

Symmetric case

moderates unbiased

extremists biased towards median

Asymmetric case

moderates: biased towards rare extremists

likely extremists: become more extreme

• freer to exercise their preferred policies

rare extremists:

• try to mimic moderates

• but if extremely rare, become super-extreme, as voters are not afraid of them

Limits are consistent with two-type case


Reputation and uncertainty

So far: incumbent is taken from the same

pool

What if incumbent has a pre-existing

reputation?

Suppose that ex-ante,

Pr incumbent is moderate = 𝜈 ≠ 𝜇

How would such incumbents behave?


Reputation and uncertainty: results Equilibrium: exists and unique

Reelection probability: increases in 𝜈

having reputation of a moderate helps get

reelected

Leftist bias is non-monotinic (⋂-shaped) in 𝜈

largest bias (populism) for intermediate 𝜈

smallest bias for both extremes

Populism is a consequence of uncertainty!


Conclusion

Populism = left-of-the-median policies

We explain why populism is linked to

popularity

More populism if

office-motivated rather than policy-motivated

moderate and honest politicians are rare

“soft” term limits

uncertainty about hidden agendas


Documents

A Political Theory of Populism