"Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System"

Upcoming Papers

Mesquita, Ethan Bueno De, and Wioletta Dziuda. Working Paper. “PARTISAN TRAPS”.Abstract
bdm_dziuda_partisan_traps.pdf
Electoral incentives may lead policymakers to eschew opportunities for common-interest reform, focusing instead on zero-sum, partisan policymaking. By forgoing opportunities for common-interest reforms, incumbents may convince their constituents that such reforms are rarely feasible, so that policymaking is primarily about zero-sum, partisan conflict. Voters with such beliefs vote based on ideological alignment, rather than factors such as quality or honesty. This is electorally beneficial for incumbents, who are typically ideologically aligned with their constituents. We capture this logic in an infinite horizon model and characterize the resulting dynamics of politics and policymaking. Equilibrium exhibits partisan traps---voters are pessimistic about common-interest opportunities, politicians behave in a purely partisan manner that shuts down voter learning, and ideologically aligned incumbents are consistently reelected. Partisan traps often occur in equilibrium even when common-interest reforms are in fact frequently feasible. The model shows how elite and mass polarization are intertwined, with politicians engaging in strategically polarized and polarizing behavior which leads to pessimistic beliefs among voters, who come to perceive there to be little political common ground.

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Faculty Discussion Group on Political Economy Seminar