THE POLITICS OF PRECOMMITMENT WITH ELECTORAL UNCERTAINTY AND TRANSACTION COSTS

In: Economics & politics, Band 8, Heft 1, S. 73-84

Abstract

Despite the lack of legal channels through which binding commitments can be made by the government, economic and political factors enable it to affect future outcomes. In practice, large transaction costs are associated with any significant change of policy, and therefore the current government can adopt policies so that certain outcomes are more likely to be realized by its successor. In this paper it is argued that transaction costs combined with electoral uncertainty are likely to drive the current government to adopt a policy which is extreme relative to the preferences of the existing political parties. This policy is adopted in order to ensure that due to transaction costs, the future government will not depart radically from the most preferred policy of the current government. If the current policy is likely to affect the election outcome, then, in addition to the above considerations, the electorate attitudes would have to be taken into account by the government. Hence, the current government confronts two factors in choosing its policies: the behavior of the future government and the behavior of the electorate. The interplay between the two factors determines the choice of the current policy.