Polarization and Inefficient Policies

Abstract

Two parties have different goals. Voters, but not parties, are uncertain about the functioning of the economy, in this case the costs of producing a public good. The parties each propose a policy, an election is held and the policy of the winning party is implemented. Voters and parties care about the level of the public good and costs. Two kinds of sequential equilibria exist; revealing, where voters learn the true costs and the implemented policy adjusts to costs, and non-revealing. If parties' preferences are polarized only non-revealing equilibria fulfill a refinement criterion like the intuitive criterion. If they are alike only revealing equilibria fulfill this criterion. Thus less political polarization improves information revelation.