Democracy, populism, and (un)bounded rationality
Journal
European Journal of Political Economy
ISSN
01762680
Type
journal article
Date Issued
2012
Author(s)
Abstract
In this paper we aim to understand how bounded rationality affects performance of demo-cratic institutions. We consider policy choice in a representative democracy when voters do not fully anticipate a politician's strategic behavior to manipulate his reelection chances. We find that this limited strategic sophistication affects policy choice in a fundamental way. Un-der perfect sophistication, a politician does not make any use of his private information but completely panders to voters' opinions. In contrast, under limited sophistication, a politician makes some use of private information and panders only partially. Limited sophistication crucially determines how welfare under representative democracy compares to welfare un-der alternative political institutions such as direct democracy or governance by experts. We find that, under limited strategic sophistication, representative democracy is preferable to the other institutions from an ex ante perspective.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
Yes
Volume
28
Number
3
Start page
358
End page
372
Official URL
Subject(s)
Contact Email Address
johannes.binswanger@unisg.ch
Eprints ID
255457