Davis - Why Do Politicians Lie

8/9/2019 Davis - Why Do Politicians Lie

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P u b l i c C h o i c e 88: 1-13, 1996. 1996 K l u w e r A c a d e m i c P u b l i s h er s . P r i n t e d i n t h e N e t h e r la n d s .

T o w a r d s a p o s i t i v e t h e o r y o f p o l i t i c a l r h e t o r i c :W h y d o p o l i t i c i a n s l i e ?

M I C H A E L L . D A V I S & M I C H A E L F E R R A N T I N OD e p a r t m e n t o f E c o n o m i c s , S o u t h e r n M e t h o d i s t U n i v e r si ty , D a l la s , T X 7 5 2 75Accepted 12 July 1994

Abstract . This pap er presents a m odel in which poli t ic ians can increase the pro bab il i ty of e lect ionby m aking exaggera ted c la ims ab ou t the benef i t s o f the i r own p la t fo rm - re fe r red to as pos i tivecam paigning - and b y exaggerating the un desirable characteris t ics of their r ival - i .e . , negativecampaigning. Such l ies m ay be detected at some p oint in the future and thus resu lt in a cos t ly lossin repu ta t ion . Thus the po l i t ic ian mus t t radeo ff imm edia te benefi ts aga ins t po ten t ia l fu tu re costs.Of course th is p rob lem is s imi la r o any commerc ia l end eavor - a ca r maker , fo r example , is temp tedto c la im tha t h is ca r i s be t te r and the com pet i t ion ' s i s worse than i t i s. Bu t i t i s shown th a t the lackof t ransfe rab le p roper ty r igh ts to po l i t ica l o f f ice makes ly ing more l ike ly in p o l i t ica l marke ts . I tis a lso shown t hat th ere is a nat ural tende ncy for poli t ic ians to engage in mo re negative cam -pa ign ing .

1 . I n t r o d u c t i o n

T h e 1 85 8 I l l i n o i s s e n a t o r i a l c a m p a i g n w i t n e s s e d w h a t m a n y r e g a r d a s t h e m o s tc o m p e l l i n g p o l i t i c a l e x c h a n g e i n A m e r i c a n h i s t o r y , t h e d e b a t e s b e t w e e nA b r a h a m L i n c o l n a n d S t e p h e n D o u g l a s . I n a s e r i es o f e n c o u n t e r s , a s w e l l a si n o t h e r c a m p a i g n i n g , D o u g l a s d o w n p l a y e d h i s v i ew s r e g a r d i n g t h e M i s s o u r iC o m p r o m i s e , t h e D r e d S c o t t d e c i s i o n a n d t h e o t h e r t r a u m a s o f t h e 1 8 50 s, l e a d -i n g in s t e a d w i t h t h e c h a r g e t h a t L i n c o l n w a s a s e c r e t a b o l i t i o n i s t w h o s e u l t i m a t eo b j e c t i v e w a s r a c i a l e q u a l i t y . I n a s p e e c h , a s q u o t e d i n M c P h e r s o n ( 19 8 7: 1 82 ),D o u g l a s s a i d :

L i n c o l n b e li e v es t h a t t h e A l m i g h t y m a d e t h e N e g r o e q u a l t o th e w h i t e m a n . . .H e t h i n k s t h a t t h e N e g r o i s h i s b r o t h e r . I d o n o t t h i n k t h e N e g r o i s a n y k i no f m i n e a t a l l . . . T h i s g o v e r n m e n t . . , w a s m a d e b y w h i t e m e n , f o r t h e b e n e f i to f w h i t e m e n a n d t h e ir p o s t e r i t y , to b e e x e c u t e d a n d m a n a g e d b y w h i t e m e n .

A n d i n a l a t e r s p e e c h ( M c P h e r s o n 1 9 87 : 1 8 5) :


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I f y o u d e s i re t h e m ( b la c k s ) t o c o m e i n t o t h e S t a t e a n d s e tt le w i t h t h e w h i t em a n , i f y o u d e s i re t h e m t o v o t e . . . . t h e n s u p p o r t M r . L i n c o l n a n d t h e B l a c kR e p u b l i c a n p a r t y , w h o a r e i n f a v o r o f th e c i t iz e n s h i p o f t h e n e g r o .

D o u g l a s w a s l y in g . I n f a c t , L i n c o l n ' s v i ew s o n r a c e r e l a t i o n s w e r e v e r y m u c hi n t h e 1 9 th m a i n s t r e a m , h e d i d n o t e v e n f a v o r a b o l i t i o n , l e t a l o n e e q u a l i t y . T oq u o t e a g a i n f r o m M c P h e r s o n ( p. 1 86 ):

L i n c o l n sp e l le d o u t h i s p o s i t i o n w i t h c l a ri t y: " I a m n o t , n o r e v e r h a v e b e e ni n f a v o r o f b r i n g in g a b o u t i n a n y w a y t h e s o c i a l a n d p o l i ti c a l e q u a l i ty o f t h ew h i t e a n d b l a c k ra c e s , ( a p p l a u se ) - t h a t I a m n o t n o r e v e r h a v e b e e n inf a v o r o f m a k i n g v o t e r s o r j u r o r s o f n e g ro e s , n o r o f q u a l if y i ng t h e m t o h o l do f f i c e , n o r t o i n t e r m a r r y w i t h w h i t e p e o p l e ; a n d I w il l s a y in a d d i t i o n t o t h i st h a t t h e r e i s a p h y s i c a l d i f f e r e n c e b e t w e e n t h e r a c e s w h i c h I b e l i e v e w i ll f o re v e r f o r b i d t h e t w o r a c e s l i v i n g t o g e t h e r o n t e r m s o f s o c i a l a n d p o l i t i c a le q u a l i t y . "

E x a m i n e d a s a p r o b l e m o f r h e t o r ic , D o u g l a s ' s t r a t e g y is r e m a r k a b l e i n t w or e g a r d s. F i r s t, h is p r e v a r i c a t i o n w a s a l m o s t c e r t a i n l y i n c o n s i s t e n t w i t h h is n o n -p o l i ti c a l p e r s o n a . D o u g l a s , w h a t e v e r h is f a il in g s , s e e m s h a r d l y t o h a v e b e e n t h ec y n i c a l m a n i p u l a t o r t h a t t h e s e q u o t e s s u g g e s t - i t i s d i f f i c u l t , f o r e x a m p l e , t oi m a g i n e h i m c h e a t i n g L i n c o l n in a c a r d g a m e o r a b u s i ne s s d ea l i ng . W h y , t h e n , d i d h e s o e f f o r tl e s s l y s t o o p t o s u c h d i s h o n o r a b l e b e h a v i o r d u r i n g a p o l i ti c a lc a m p a i g n ? S e c o n d l y , w h y , h a v i n g c h o s e n t o l ie , d id h e l ie a b o u t L i n c o l n i n-s t e a d o f e x a g g e r a t i n g s o m e p o s i t iv e e l e m e n t o f h i s o w n c h a r a c t e r o r p o s i t i o n s ?

L y i n g c r e a t e s b o t h b e n e f i t s a n d c o s ts f o r l i ar s. T h u s , i t se e m s r e a s o n a b l e t oe x a m i n e th e d e c i s i o n t o l ie t h r o u g h t h e le n s o f m i c r o e c o n o m i c s . A n d i n d e e d ,t h e e c o n o m i c s o f ly i n g c a n b e t h o u g h t o f a s a s ub s e t o f t h e e c o n o m i c s o f i n f o r -m a t i o n . A n i n c o m p l e t e li st o f t h e r e le v a n t l it e r a t u r e w o u l d i n c l u d e t h e p a p e r sb y A k e r l o f ( 1 9 7 0 ) , K l e i n a n d L e f f l e r ( 1 9 8 1 ) a n d C r a w f o r d a n d S o b e l ( 1 9 8 2 ) .T h e r e i s, o f c o u r s e , a s u b s t a n t i a l l i t e ra t u r e m o d e l l i n g p o l i ti c a l b e h a v i o r a s e c o -n o m i c b e h a v i o r . I n th i s p i p e r , w e a t t e m p t t o l in k t h e s e t w o a p p r o a c h e s i n o r d e rt o b e t t e r e x p l a i n t h e k i n d s o f b e h a v i o r ty p i f i e d b y t h e e x a m p l e o f L i n c o l n a n dD o u g l a s . T u l l o c k ( 1 96 7 : C h . 9 ) a l so c o n s i d e r s t h e e c o n o m i c s o f l y in g . B e c a u s et h e p a r t i c u l a r s o f o u r m o d e l a r e v e r y d i f f e r e n t , w e o b t a i n d i f f e r e n t (b u t n o tc o n t r a d i c t o r y ) re s u lt s . B u t b o t h h is m o d e l a n d o u r s s h a r e t h e s a m e u n d e r l y i n gs p i r i t .

I n w h a t f o l l o w s , w e a t t e m p t t o e x p l o r e h o w w h a t w e be l ie v e a r e i m p o r t a n td i s ti n c t io n s b e t w e e n p o l it i c a l m a r k e t s a n d o t h e r m a r k e t s a f f e c t t h e t y p e o fc l a im s m a d e i n e a c h . W e p r e s e n t t w o m a i n r e s u lt s . F i rs t , t h a t b e c a u s e o f t h en a t u r e o f p r o p e r t y r i g h ts i n p o l i t i c a l o f f i c e , p o l it i c a l r h e t o r i c w i l l b e l es s h o n e s tt h a n o t h e r t y p e s o f s p e e c h . S e c o n d , t h a t b e c a u s e o f t h e w a y p o l i ti c a l c la i m s a r e


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v e r i f ie d , t h e r e i s a s p e c i al t e n d e n c y i n p o l i ti c a l m a r k e t s t o e x a g g e r a t e c l a im sa b o u t t h e d e f i c i e nc i e s o f t h e c o m p e t i n g s i d e - i n t h e j a r g o n o f p o li t ic s , n e g a t i v ec a m p a i g n i n g .I n t h e n e x t s e c t i o n w e p r e s e n t a b r i e f v e r b a l d is c u s s io n t h a t c a p t u r e s t h ef l a v o r o f o u r w o r k . S e c t i o n 3 f o r m a l l y m o d e l s t h e p o li t ic i a n s d e c i s io n a b o u tw h e t h e r t o t e ll th e t r u t h . S e c t i o n 4 c o n s i d e r s h o w t h e m o d e l w i l l b e m o d i f i e di f v o t e r s u n d e r s t a n d t h e i n c e n t i ve s f a c e d b y t h e p o l it i c ia n s . C o n c l u s i o n s a n df u r t h e r d i s c u s s io n a r e i n S e c t i o n 5 .

2 . Po l i t i ca l m a rk e t s , e co n o m i c m a rk e t s a n d l i e sL y i n g , a l a s , i s h a r d l y u n i q u e t o p o l i ti c s - c h i l d r e n l ie t o p a r e n t s , s t u d e n t s t ot e a c h e r s , a n d a d v e r t is e r s t o c o n s u m e r s . I n e a c h o f th e s e r e la t i o n s h i p s , t h o u g h ,p o w e r f u l f o rc e s e xi st t o m o d e r a t e u n t r u t h s : p a r e n ts c a n i m p o u n d b i cy c le s ,t e a c h e r s w i ll a s s i g n f a i l in g g r a d e s a n d j i l t e d c o n s u m e r s c a n s u e . B u t w h i l e t h e s ee x p l ic i t s a n c t i o n s m a y , i n s o m e s i t u a t i o n s, m a k e u p a n i m p o r t a n t p a r t o f t h ec o s t o f l y in g , n e a r l y e v e r y l i ar m u s t c o n s i d e r th e v a l u e o f l o s t r e p u t a t i o n - d i s-h o n e s t c h i l d r e n r is k n o t o n l y b i c yc l e s , b u t t h e f u t u r e b e n e f i t s t h a t f o l l o w a p a r -e n t ' s t r u s t .T h e n e e d t o m a i n t a i n r e p u t a t i o n m a y b e a p a r t i c u l a rl y vi ta l f o r c e f o r t r u t hi n t h o s e i n s t a n c e s w h e r e d i r e c t p e n a l t ie s t o l ia r s ( e .g . , l a w s u i ts o r f o r f e i t u r e o fs o m e b o n d ) a r e c o s t ly o r o t h e r w i s e u n a v a i la b l e . B o t h p o l i t ic a l m a r k e t s a n dm a n y e c o n o m i c m a r k e t s h a v e t h is c h a r a c t e r i s ti c . I t is si m p l y i m p r a c t i c a l t o s u ea s o u p m a n u f a c t u r e r w h o p r o m i s e s b u t d o e s n o t d e l iv e r a p a l a ta b l e p r o d u c t . I tis s im i l a r l y i m p r a c t i c a l t o s u e a p o l i t ic i a n w h o p r o m i s e s p e a c e a n d p r o s p e r i t yb u t c r e a t e s w a r a n d d e p r e s s i o n . O f t e n t h e b e s t p r o t e c t i o n a g a i n s t a d i sh o n e s tv e n d o r o r d e c e i t f u l p o l i t ic i a n is t h e t h r e a t t o d o b u s i ne s s e l s e w h e r e .

T h e s t r u c t u r e o f p r o p e r t y r i g h ts t h a t c h a r a c t e r i z e s th e c l a s si c b u s i n e ss f i r ms e rv e s (n o t b y a c c i d e n t , o f c o u r s e ) t o i n c r e a s e t h e i m p o r t a n c e o f r e p u t a t i o n t ot h e i n s t i tu t i o n . I n s o f a r a s p r o p e r t y ri g h t s t o t h e f i r m a r e t r a n s f e r a b l e i n a ne f f i c i e n t m a r k e t , t h e v a l u e o f f u t u r e r e p u t a t i o n i s c a p i t a l iz e d i n th e p r e s e n tv a l u e o f t h e f i r m . T h u s , a f i r m t h a t i s t e m p t e d t o t e ll a l ie t h a t m a y t a r n i s h t h ef i r m ' s r e p u t a t i o n a t s o m e p o i n t i n t h e f u t u r e w i ll b e f o r c e d t o w e i g h th e s e c o s tsa g a i n s t t h e i m m e d i a t e b e n e f i t s o f t h e l ie . T h i s , o f c o u r s e , i s n o t t o s a y t h a t f i r m sw i ll t e ll t h e l e v e l o f t r u t h t h a t m a x i m i z e s w e a l t h - i f i t i s p o s s i b l e t o d e c e i v ec o n s u m e r s i n t h e s h o r t r u n i t m a y a l so b e p o s s i b le t o d e c e i v e t h e c a p i t a l m a r k e t s- b u t i t is c e rt a i n l y t r u e t h a t t h e t r a n s f e r a b l e p r o p e r t y r i g h ts g i v e o w n e r s o ff i rm s a n i n c e n t i v e t o m a i n t a i n a r e p u t a t i o n f o r h o n e s t d e a l i n g.

A c r it i ca l d i f fe r e n c e b e t w e e n m a n y f i r m s a n d p o l i ti c i a n s is t h a t t h e l a t t e r d on o t h o l d t r a n s f e r a b l e p r o p e r t y r i g h ts t o t h e i r o f f ic e . 1 T h u s , p o l i ti c i a n s a s ag r o u p h a v e l es s i n c e n t iv e to b e h o n e s t s i n c e t h e y n e e d o n l y b e c o n c e r n e d a b o u t


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how l ie s w il l a f fe c t t he i r r e pu ta t i on dur ing the i r t e nure i n o f f i c e . For i ns t anc e ,a po l it i c ia n w h o p l a ns t o re t ir e in one ye a r w ou ld no t be d i s sua de d f rom t e ll inga l ie tha t could be d iscovered o nly two -years h ence . 2Po l i t i c a l ma rke t s a re a l so d i f fe re n t f rom ma ny o the r e c onomic ma rke t s i ntha t t he na tu re o f t he c ompe t i t i on i s e s se n t i a l l y " w inne r - t a ke -a l l . " A s w ede m ons t ra t e i n t he fo rma l mode l t ha t fo l l ow s , t h is a l so c re a te s pow e r f u l i nce n-t ives to l i e tha t may not be found in o ther se t t ings . Cons ider a pol i t i c ian run-ning fo r off ice tha t , i f los t , would end his ca ree r . I f the re was a se r ious dang erof def ea t , the re wou ld b e li t tl e reas on n ot to l ie , so long as the va lue to the pol i -t i c ia n o f ho ld ing o f f i c e w i th sha t t e re d re pu ta t i o n e xc e e de d the a l t e rna t ive o fde fe a t .

Po l i t ic i a ns a dva nc e t he i r c a use by ma k ing tw o k inds o f c l a ims : s t a t e me n t sa bo u t t he i r a dva n ta ge s o f t he i r pos i t i ons , pos i ti ve c l aims , a nd s t a t e me n t s a bo u tthe d i sa dva n ta ge s o f o ppo ne n t s , ne ga t ive c la ims. T h i s , o f c ourse , i s t rue o f a d -ve r ti s ing fo r ma n y type s p rod uc t s - t he de m a nd fo r a c e r t a in b ra n d o f soupis b o u n d t o i n c re a se w h e n a n o t h e r b r a n d is f o u n d t o b e u n w h o l e s o m e .

The ne e d to m a in t a in re pu ta t i o n is a n impo r t a n t de t e r re nc e t o e i t he r t ype o fl ie on ly t o t he e x t e n t t ha t a f a l s e ho od c a n be d i sc ove re d . A n d he re in , w e th ink ,is a no th e r im por t a n t d i f fe re nc e be tw e e n po l i ti c a l a nd e c ono mic ma rke t s . Inma ny e c ono mic se tt ings , pos i t i ve a nd ne ga t ive c l aims c a n be t e s t e d w i th a bo u tequa l ease , and so adver t i se rs wi l l not have a s t rong bias towards e i the r typeof c l a im. H ow e ve r i n po l it i ca l ma rke t s t he ou t c om e o f t he e l e c t i on is usua l lycr i t i ca l in de te rmining which c la ims wi l l be tes ted . I f nega t ive c la ims succeedin se c ur ing the de s i re d ou t c ome , t he y ma y ne ve r be t e s t e d . Thus , i f t he y a refa l se , t he po l i t i c i a n ma k ing the m su f fe r s no l os s o f r e pu ta t i on . O n the o the rhan d, i f pos i t ive campaign s a re successful , the c la ims made a re mo re l ike ly tobe tes ted , an d i f fa lse , cause the pol i t i c ian to su ffe r a loss of reputa t ion . A s wee xp la in mo re fo rm a l ly in t he ne x t s e c t i on , th i s a sym me t r y c rea t e s a na tu ra l b i astow a rds ne ga t ive c a mpa igns .To ge t a be t te r fee l for h ow th is b ias a r i ses , cons ider the ex ample o f a pol it i -c i a n t ry ing to de c ide w he the r t o e m pha s i z e a ne ga t ive t he me - pe rha ps c l aim-ing tha t the c r ime ra te wi ll r i se i f he r opp on en t i s e lec ted - or som e pos i t ivethe me - he r ow n c o mm i tme n t t o l aw a nd o rde r . I f t he po l it i c ia n is e l e ct e d onthe s t rength of he r pos i t ive cla ims , she mu st k no w tha t he r pro mises wi l l be tes t -e d aga inst he r pe r fo rm a nc e . O n the o the r ha nd , a suc c e ss fu l c a mp a ign me a nstha t ne ga t ive c la ims c a n ne ve r be t e s te d - t he on ly w a y the e l e c to ra t e c a n e ve rkno w w h e the r t he oppo ne n t w ou ld p re c ip i t a t e a c r ime w a ve w ould be t o e l ec th im to o f f i c e . Thus , i f t he pos i t ive o r ne ga t ive cl a ims ha ve the sa me impa c t onthe c ha nc e s o f e l e ct i on , t he po l it i c ia n w i ll be more t e mp te d tow a rds e xa gge ra t-ing the nega t ive , s ince in so doing she inc reases the chances of e lec t ion and solow e rs t he e xpe c t e d c os t o f l o s t r e pu ta t i on . The re i s a n e ve n s t ronge r b i a stow a rds ne ga t ive ca mpa ign ing w he n , i f t he e l e c ti on is lo s t r e pu ta t i on ma y be


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unimportant . Indeed, if this is the case, then the politician ought to make themost negative claims possible.

Political markets are probably not unique in creating asymmetr ic incentivesfor negative claims. All tha t matters is that if the object o f the claim behavesin the desired way, the veracity of the claim is more difficul t or verify. This mayarise due to inefficient information flows, foreclosure of options, or inefficientinformation processing. For example, certain types of household maintenanceservices are purchased infrequently. It may be costly to identify other cus-tomers having experience with a particular seller, and obtaining a price quotemay involve a time-consuming house visit. If a potent ial seller informs a house-holder that methods generally used by competitors for duct cleaning or con-crete repair are inferior or will damage the house, such claims may be believedand achieve a sale for the seller. This means, of course, tha t the quality of com-petitors' services will remain untested. The perverse incentives are compound-ed in that if the seller's positive claims about own performance prove to be un-founded, the buyer may find that word-of-mouth and reports to local chamberof commerce are inefficient methods of reducing the seller's reputation.

Another case of negative claims in commodity markets arises in advertisingto children. The purchase o f goods consumed by children often involves com-plicated interaction between parent and child. As a consequence, the child maybe unable to conduct experiments involving alternating purchases of competingexperience goods, even when the financial cost of such experiments are relative-ly low. In addition, children are likely to be less skilled in revising their priorbeliefs than other consumers. These circumstances are likely to increase thevalue to the advertiser of making exaggerated negative claims which, if be-lieved, will forestall sampling of competing goods. For example, a recent TVadvertising campaign for a national chain of pizza restaurants-cum-game ar-cades catering to children informs children that at other pizza restaurants theywill be exposed to bad food, intense boredom and opera singing. 3

3 . T h e m o d e l

3.1. Notation and assumptionsWe begin by assuming that a political issue must be decided in which there aretwo clear sides. The politician knows the true nature o f these outcomes and soknows precisely the uti lity forthcoming to himself under each proposal as wellas the true value that constituents will receive from the success of each side.Denote the politician's utility under the preferred policy as Up and the utilityunder the less desirable policy as U n. Without loss of generality let un = 0,with UP > 0. Thus, for example, UP might represent the utility the politician


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derives if he is elected as compared with defeat. If the issue is some legislativeproposal U p gives the value to the politician o f seeing his posit ion adopted asopposed to some other.The politician can influence the probability that the desired proposal will beadopted by making claims as to the value (utility) tha t some constituent groupwill receive under either side. This constituent group might simply be the votersor, in the case of a legislative proposal, some special interest lobby that could,if sufficiently motivated, influence the legislature. Le t V cp denote the value thepolitician claims the constituent will receive under the proposal favored by thepolitician and Vcn the value the politician claims constituents will receive un-der the alternative. For example, V cp might be the addit ional wealth the politi-cian promises the voters if he is elected, and Vcn might be the decline thevoter 's wealth that the politician claims will result from the election of his op-ponent.

Assume that the probability of the favored policy being adopted dependsupon the difference in the values claimed under each. That is the probabilitythat the politician will receive Up is given by p=po+P(VCp-Vcn), withP'(Vcp-v cn) > 0, where Po is simply the probability of the desired proposalpassing if the politician made no attempt to influence the outcome (i.e.,P ( O ) = o ) .

We assume that during the campaign the constituents do not know the truevalue that they will receive under each policy, which we denote V p and V n.However, at some time in the future, after the matter is decided, they may ob-tain better information as to the truth. We denote this realized, e x po s t , valueas V rp and VTM. Note tha t in our model as, we think, in the political world thetru th does not inevitably win out - i.e., V p need not equal V p.

We assume that lying is costly to the politician in that it reduces the valueof his reputation. To capture this, let the function r=R[(Vcp-vrp)2+(vcn-vrn) 2] represent a measure, in units comparable to utili ty, of the politi-cian's reputation. In the simplest case, Up might simply represent the incomethe politician will receive under the favored outcome, and R would representthe expected present value of all future income the politician would receivefrom his position. As the difference between what the politician claimed andwhat the constituent groups finally observes increases, it becomes moredifficul t for the politician to influence future events in his favor and so r woulddecline (i.e., we assume R'[ .] < 0). As we develop more fully below, -R' (. ) isessentially the marginal cost of lying. Thus, we make the usual assumption thatmarginal costs are non-decreasing (i.e., we assume R" (.) _< 0).

Notice that in this formulation lying is symmetric in the sense that incorrectclaims as to advantages of the policy the politician wants adopted (or ratherclaims that are latter perceived to be incorrect) have the same effect on reputa-tion as incorrect claims about the issue the politician wants defeated. Notice


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a l so t h a t r m a y b e s t o c h a s ti c , e s p e c i a l ly i n s o f a r a s w h a t t h e c o n s t i t u e n t s r e a li z ee x p o s t m a y b e r a n d o m . W e c o n s i d e r th is i n m o r e d e t a il b e lo w . W e r e c o g n iz e ,o f c o u r s e , t h a t t hi s f o r m u l a t i o n o f r e p u t a t i o n is a t b e st a r o u g h s u m m a r y o fw h a t i s s u r e ly a c o m p l e x a n d m y s t e r i o u s p ro c e s s . H o w e v e r , s in c e t h e p u r p o s eo f t h i s p a p e r i s n o t t o m o d e l t h e p r o c e s s b y w h i c h c o n s t i t u e n t s d e c i d e h o wm u c h f a i t h t o p u t i n p o l i t i c a l r h e t o r i c , t h i s f o r m u l a t i o n i s s u f f i c i e n t t o m a k et h e p o i n t s w e t h i n k r e l e v a n t .

I n o u r m o d e l , t h e r e f o r e , t h e p o l i ti c i a n h a s t w o d e c i s i o n v a ri a b l e s: t h e p o s i -t i v e c l a im s t o b e m a d e a b o u t t h e a d v a n t a g e s o f d e s i r e d p o l ic y , V cp, a n d n e g a -t i v e c la i m s a b o u t t h e a l t e r n a t iv e , V cn. T h e e x p e c t e d u t i li t y r e c e i v e d f r o m a p a i ro f c l a i m s i s t h e r e f o r e

p(VCp, vcn ) = [Po + p (V cp -ve n ) ]u P + 8R[ (VcP -v rn )2 + (vcn -v rn )2 ] (1 )w h e r e 5 is s i m p l y a p a r a m e t e r t o m e a s u r e t h e r e l a ti v e i m p o r t a n c e o f r e p u t a t i o nt o c u r r e n t v a l u e . I n t h e n e x t t w o s u b s e c t i o n s w e c o n s i d e r h o w t h e o p t i m a l le v el so f t h e c la i m s u n d e r v a r i o u s c o n d i t i o n s .

3 .2 . O pt im al ly ing when e x po st ver i f ica t ion i s poss ib leW e t u r n o u r a t t e n t i o n n e x t t o t h e q u e s t i o n o f t he o p t i m a l d e c e p t i o n w h e n a l lf a l s e h o o d s w i l l e v e n t u a l l y b e d i s c o v e r e d . A l t h o u g h t h is e x e r c i se is q u i t e s i m p l ea n d g e n e r a t e s p r e d i c t a b l e r e su l t s, i t is u s e f u l i n e s t a b li s h in g a b e n c h m a r k f o rc o m p a r i s o n w i t h t h e c a s e d i s c u s se d i n t h e n e x t s e c t i o n i n w h i c h s o m e l ie s w i llg o u n d e t e c t e d . I f t h e c o n s t i t u e n c y e v e n t u a l l y d i s c o v e rs t h e t r u t h a b o u t h o w i tw i ll b e a f f e c t e d b y p r o p o s a l s , t h e n i t is t r u e t h a t V tp = V rp a n d V t n = V TM. T h u s ,s u b s t i t u t i n g i n t o ( 1 ) , w e s e e t h a t t h e o p t i m a l c l a i m s m u s t s a t i s f y

q)vcp = P ' ( . ) U p + 2 5 R ' [ ( V c P -V t p ) 2 + ( v c n - v t n ) 2 ] ( V c P - V t p ) = 0 (2 .1 )q)vca = -P ' ( . )U p + 26 R ' [ (VcP-Vtp)2 + ( v c n - v t n ) 2 ] ( v c n - v t n ) = 0 (2 .2 )

S i m p l y m a n i p u l a t i o n o f t h e s e fi r st o r d e r c o n d i t i o n s c o n f i r m s th e o b v i o u s : t h a tt h e p o l i t i c i a n w i ll w is h t o e x a g g e r a t e t h e d e s i r a b le f e a t u r e s o f t h e p r o p o s i t i o nt h a t h e f a v o r s ( i .e . , V c p - v p > 0 ) w h i le e x a g g e r a t i n g t h e u n d e s i r a b l e f e a t u r e s o ft h e n e g a t i v e ( i . e ., V c n - v tn < 0 ) . P e r h a p s m o r e i n t e r e s t i n g l y , w e s ee t h a t t h e r e i sn o b i a s t o w a r d s e i t h e r p o si t iv e o r n e g a t i v e c a m p a i g n i n g i n t h e s e n s e t h a t t h em a g n i t u d e o f t h e p o s i t i v e l ie s a r e e x a c t l y m a t c h e d i n a b s o l u t e v a l u e b y t h en e g a t i v e l i es . 4


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3 .3 . O p t i m a l l y in g w h en t h e t r u t h i s h i d d en

S u p p o s e t h a t c o n s t i t u e n t s c a n o n l y d e t e r m i n e i f a p o l i t ic i a n h a s t o l d t h e t r u t hb y c o m p a r i n g t h e c la i m s t h a t w e r e m a d e a g a in s t w h a t a c t u a l l y h a p p e n e d . T h u s ,o n l y t h o s e p o l ic i e s t h a t g e t p a s s e d c a n a c t u a l l y b e t e s t e d . S u p p o s e f u r t h e r t h a ti f t h e c l a i m c a n n o t b e t e s t e d , t h e p o l it i c i a n 's r e p u t a t i o n d o e s n o t s u f f e r . I no t h e r w o r d s , i f t h e f a v o r a b l e o u t c o m e o c c u r s , t h e n V tp = V tp, a n d V rn ----V on.S i m i la r ly , i f t h e u n f a v o r a b l e o u t c o m e c o m e s t o p a ss , t h e n v r p = V cp a n dV TM -----V n . T h i s i m p l i e s t h a t t h e r e p u t a t i o n i s a l s o s t o c h a s t i c a n d s o t h e p o l i t i -c i a ns e x p e c t e d u t i l i ty f u n c t i o n is

q ) (Vcp ,vcn) = i~ {U p + 8R[VC p-vcn )2] } + (1 -p )SR [ (Vcn -v tn )2 (3)T h e o p t i m a l c l a i m s m u s t s a t i s f y

q ) v C P ( - ) = p ' ( . ) { U p + 8 R [ ( V c p - v t p ) 2 ] - ~ R [ ( v c n - v t n ) 2 ] }+ [P o + P ( - ) ] f R ' [ ( V c P - V t p ) 2 ] ( V c P - V t p ) = 0 (4 .1 )

(DvCn(.) = - p ' ( . ) [ U P + S R [ ( V c p - v t p ) 2 ] - 6 R [ ( V c n - v t n ) 2 ] }+ [ 1 - P o - P ( - ) ] ~ S R ' [ ( v c n - v tn ) 2 ] ( v c n - v tn = 0 (4 .2 )

I f s o m e l ie s c a n b e h i d d e n , t h e n i t w i ll n o l o n g e r b e t h e c a s e t h a t t h e p o l i ti c i a nw i ll w is h t o b a l a n c e n e g a t i v e a n d p o s i t iv e li es . I t is s t r a i g h t - f o r w a r d t o d e m o n -s t r a te t h r o u g h t h e u s u a l t e c h n i q u e s t h a t a n i n c r e a s e in P o c a u s e s a d e c r e a s e i nt h e c l a i m f o r t h e p o s i t i v e s i de a n d a d e c r e a s e i n t h e c l a i m s f o r t h e n e g a t i v e s i d e .T h u s , a s P o in c r e a se s t h e p o s i t i v e c l a im s m o v e b a c k t o w a r d s t h e t r u t h a n d t h en e g a t i v e c l a i m s m o v e f u r t h e r a w a y f r o m t r u t h .

I n s p e c t i o n o f t h e f i rs t o r d e r c o n d i t i o n s r e v e a l s w h y t h i s is s o . I n e x p r e s s i o n( 4 . 1 ), t h e t e r m [ p o + P ( . ) ] ~ S R ' [ (V c p - v t p ) 2 ] ( V c p - v p ) r e p r e s e n t s t h e m a r g i n a lc o s t s o f i n c r e a s i n g t h e p o s i t i v e li e . A s P o g o e s u p , t h e s e c o s t s g o u p a n d a s li e sb e c o m e m o r e e x p e n s i v e , f e w e r a r e t o l d . I n o t h e r w o r d s , t o s a y t h a t P o h a sg o n e u p is t o s a y t h a t t h e f a v o r a b l e o u t c o m e is m o r e l ik e ly t o c o m e a b o u t .T h u s , t h e p o l i t ic i a n n e e d s t o b e m o r e c a r e f u l a b o u t p o s i t i v e cl a im s s i n c e t h e s ea r e m o r e l ik e l y t o b e t e s t e d .

I n e x p r e s s i o n ( 4 . 2 ) t h e t e r m [ 1 - P o - P ( - ) ] ~ R ' [ ( v c n - v t n ) 2 ] ( v c n - v t n ) i s p o s i t i v ea n d c a n b e t h o u g h t o f a s t h e m a r g i n a l b e n e f i t o f r e d u c i n g t h e n e g a t i v e li e. A sP o g o e s u p , t h i s m a r g i n a l b e n e f i t d e c l i n e s . A s t h e b e n e f i t t o m o r e h o n e s t yr e g a r d i n g t h e o p p o s i t i o n g o e s d o w n , m o r e l i e s a r e t o l d a b o u t t h e o p p o s i t i o n .

T h i s r e s u lt h a s a n i n t e r e s ti n g c o r o l l a r y t h a t s u p p o r t s o u r c o n t e n t i o n o f a b i a st o w a r d s n e g a ti v e c a m p a i g n i ng : i n t h o s e c o n t e st s e v e n l y m a t c h e d b e f o r e c a m -p a i g n i n g - i . e . , t h o s e w h e r e P o = .5 - t h e p o l i t i c i a n w i ll e n g a g e i n m o r e n e g a -t i v e t h a n p o s i ti v e rh e t o r i c . T o s e e t h i s, s u p p o s e t h a t a f t e r t h e c a m p a i g n t h e


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( v c n _ v t n ) 2I

I

I ( V c p - V t p ) 2i

9

.5 PoFigure 1. Optimal lies as a function of pre-campaign odd s of winning.

o d d s o f v i c t o r y a r e e v e n - t h a t i s P o + p ( V c p- v cn ) = . 5 . I t i s o b v i o u s f r o m t h ef i r s t o r d e r c o n d i t i o n s t h a t t h i s i m p l i e s t h a t V c p - v p = - ( v c n - v t n ) . I t i s, o fc o u r s e , a l so t r u e t h a t w h e n t h e a f t e r c a m p a i g n o d d s a r e ev e n , t h e p r e - c a m p a i g no d d s m u s t b e l e s s t h e . 5 . T h u s , r e l y i n g o n t h e r e s u l t s t h a t a s P o g o e s u p t h en e g a t i v e l i es g e t b i g g e r a n d t h e p o s i t i v e li es s m a l l e r , i t f o l l o w s t h a t w h e n P o =. 5 m o r e n e g a t i v e c a m p a i g n i n g o c c u r s .

T h e s e r e s u lt s a r e s u m m a r i z e d i n F i g u r e 1, w h i c h s h o w s a g r a p h o f t h e o p -t i m a l l e v e l o f n e g a t i v e a n d p o s i t i v e li es - i . e . , ( v c n - v t n ) 2 a n d ( V c p - v t p ) 2 - a sf u n c t i o n s o f t h e p r e - c a m p a i g n o d d s o f v i c t o r y . H e r e i t is se e n t h a t t h e n e g a t i vel ie s i n c r e a s e w i t h t h e p r e - c a m p a i g n o d d s a n d t h e p o s i t i v e l ie s d e c r e a s e . I t i s a l s os e e n t h a t w h e n t h e o d d s s t a r t o f f a s e v e n , th e r e i s a l r e a d y a b i a s t o w a r d s n e g a -t i v e c l a i m s .

3 . 4 . O p t i c a l li es a n d t h e e l e c t i o n o S . . d o o mI n t h e m o d e l s p r e s e n t e d t h u s f a r , t h e p o l i t ic i a n is a s s u m e d t o v a l u e r e p u t a t i o ne v e n i f t h e p r o p o s i t i o n f a il s. W e m a d e t h i s a s s u m p t i o n i n o r d e r t o d e m o n s t r a t et h a t o u r h y p o t h e s is a b o u t n e g a ti v e c a m p a i g n i n g h o l d s u n d e r e v e n hi g h ly u n -l i k el y c i r c u m s t a n c e s . I n m a n y c a s e s th i s is o b v i o u s l y u n t r u e . I n p a r t i c u l a r ,r e p u t a t i o n a s a n h o n e s t p o li ti c ia n m a y n o t b e o f m u c h v a l u e i n o t h e r o c c u p a -t i o n s . T h u s , i f t h e p r o p o s i t i o n is w h e t h e r t h e p o l i t i c i a n w il l b e e l e c t e d , a d e f e a tm a y r e n d e r a l l r e p u t a t i o n w o r t h l e s s. T h i s i s e sp e c i a ll y t r u e w h e n i t i s u n l i k e l yt h a t a d e f e a t e d p o l i t ic i a n w il l e v e r b e a b l e t o r u n a g a i n . A s m i g h t b e e x p e c t e d ,


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10t h is m a k e s l y in g m o r e e x t r e m e a n d n e g a t iv e c a m p a i g n i n g m o r e l ik e ly .

H e r e a g a i n , w e m u s t c o n s i d e r s e p a r a t e ly t h e t w o c a s e s w h e r e expost ve r i f i c a -t i o n i s a n d is n o t p o s s ib l e . W h e n c o n s t i t u e n t s c a n v e r i fy c la i m s a t s o m e p o i n ti n th e f u t u r e , t h e p o l i t ic i a n ' s o b j e c ti v e f u n c t i o n b e c o m e s

q)(Vcp'vcn) = [Po + p(v cp- vcn )] {Up + 6R[(Vcp-vrp) 2 + (vcn-v rn) 2] } (5)T h e o n l y d i f f e r e n c e b e tw e e n t h is a n d t h e o b j e c t iv e f u n c t i o n g i v e n b y ( 1) is t h a th e r e t h e r e p u t a t i o n f u n c t i o n is d e f l a t e d b y t h e p r o b a b i l i ty o f s u cc e ss . T h i s i ss i m p l y e q u i v a le n t t o l o w e r i n g th e c o s ts o f l y in g a n d s o w e e x p e c t th a t t h e r ew o u l d b e m o r e l y i n g . I t i s e a s i ly s h o w n t h a t i n t h i s c as e t h e l ie s a r e s t il l s y m -m e t r i c .

A m o r e i n t e r e s t i n g ( o r a t le a s t m o r e e x t r e m e ) re s u l t f o l l o w s w h e n w e c o n s i d e rw h a t h a p p e n s w h e n c o n s t it u e n t s c a n n o t v e r i f y n e g a t i v e c l a im s w h e n t h e p o l i ti -c i a n i s s u c c e s s f u l . H e r e t h e p o l i t i c i a n ' s o b j e c t i v e f u n c t i o n i s

q0(Vcp,v cn) = [po+ P(V Cp -vcn) ]{U P+6 R[(V cp-vrp )2]} (6 )S i n c e t h i s i s m o n o t o n i c a l l y d e c r e a s i n g i n V cn, t h e p o l i ti c ia n w i l l m a k e t h e

m o s t e x t r e m e l y n e g a t i v e c h a r g e s a b o u t t h e o p p o s i t i o n p o s s ib l e . I n o t h e r w o r d s ,i f a v i c to r y m e a n s t h a t n e g a t iv e c la i m s h a v e n o i m p a c t o n r e p u t a t i o n , a n d i fd e f e a t m e a n s t h a t r e p u t a t i o n i s i r r e l e v a n t , t h e p o l i t i c i a n s h o u l d s e t t h e l ev e l o fn e g a t i v e c a m p a i g n i n g s o as t o m a x i m i z e th e p r o b a b i l i t y o f v i c t o r y .

4 . V o t e r s ' p r o c e s s i n g o f p o l i t i c i a n s ' c l a i m sW h a t h a p p e n s w h e n v o t e r s e x p e ct p o l it ic i a n s t o l ie a n d b a s e t h e ir e x p e c t a t i o no f t h e t r u t h o n a t r a n s f o r m e d v e r s i o n o f th e p o l i t ic i a n ' s c l a im , o b t a i n e dt h r o u g h s o m e f o r m o f B a y e s i a n r e v is i o n o f p r i o r b e l ie f s? I n g e n e r a l, t h i s w il lr e d u c e b u t n o t e l i m i n a t e t h e p o l i t i c i a n ' s i n c e n t i v e s t o l i e . I n o u r m o d e l , t h ep o l i t i c i a n is e ss e n t i a ll y a S t a c k l e b e r g l e a d e r , m a k i n g c l a im s t o v o t e r s w h o s ep o l it ic a l s u p p o r t a n d e v a l u a t i o n o f t h e p o l i t i c ia n ' s r e p u t a t i o n is b a s e d o n a r e la -t iv e l y c r u d e r e a c t i o n t o l ie s w h i c h d o e s n o t t a k e i n t o a c c o u n t t h e p o l i t ic i a n ' si n c e n t i v e s . I f w e a t t r i b u t e m o r e c o m p l e x r e a c t i o n s t o v o t e r s , t h i s t e n d s t or e d u c e b u t n o t e l i m i n a t e th e p o l i ti c i a n 's a b i l it y t o m a k e m i s l e a d i n g cl a im s .

C o n s i d e r f i r s t a r e l a t i v e l y s i m p l e c a s e i n w h i c h v o t e r s r e a c t t o p o l i t i c i a n s 's t a t e m e n t s b y r e v is in g t h e i r p ri o r s i n a B a y e s i a n f a s h i o n , b u t i n w h i c h t h e y d on o t a t t r i b u t e o v e r t s t r a te g i c b e h a v i o r t o p o l i t i c ia n s . S p e c i f i c a ll y , v o t e r s a s s u m et h a t t h e r e a r e c o n g e n i t a ll y " h o n e s t " p o l i ti c ia n s w h o t e l P th e t r u t h w i t h p r o b -a b i l i t y ~th a n d c o n g e n i t a l l y " d i s h o n e s t " p o l i t i c i a n s w h i c h t e l l t h e t r u t h w i t hp r o b a b i l i t y a d , O < a d < a h < 1 . T h e p o l i t ic i a n s r e p o r t t h e v a l u e o f a v a r i a b l e g


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11from which the voters derive utility and which will be subsequently confirmed.Let the variable take only two values, a truthful value gt and a false value g f .If politicians' utility is rising in the voter's perception of g, then g f > g t " Inaddition, voters have a prior probability 13 that any given politician will behonest. By straightforward application of Bayes' rule, after the politiciana n n o u n c e s g t and the voters conform it, they revise their value of 13 to fi =ahl3/(ahfi + ad(1-fi)), while if the politician announces gf and the voters laterconfirm the values gt, they revise their value of 13 o f i f = ( ( 1 - ~ h ) f i / ( ( 1 - ~ h ) f i - l -(1-~td)(1-13)). If is straightforward to show that ~ t > ~ > ~ f " Thus, the voters'repeated observation that an individual politician's claims are true or false leadto an evolution of the politician's reputation, but a gradual one. If politiciansbelieve tha t voters reason in this way, it will thus reduce but not eliminate thetendency to lie. 5

The most general case is one in which both voters react to politicians' claimsby revising their beliefs about politicians' honesty and in which politicians'claims are made in a way which explicitly recognizes that voters do this.Crawford and Sobel (1982) analyze a very general case of Bayesian Nashequilibrium in which one better-informed player (a "s ender") sends a possiblynoisy signal to another player (a "receiver ') who takes an action influencingthe welfare of both players. In our case, the politician is the sender and thevoter, the receiver. In general, in full Bayesian Nash equilibrium senders givereceivers noisy information which truthfully indicates a general range o f thesender's private information but not the precise value of the information.When the sender and receiver have widely differing utility functions, the noiseis greater. This suggests a limited but still present potential for political obfus-cation, as well as offering the prediction that politicians whose privately heldpolicy preferences differ strongly from those o f the electorate are more likelyto lie.

It remains an open theoretical question whether voters' understanding of thebias toward negative campaigning leads to an equilibrium which wouldeliminate that bias entirely or merely reduce it. Given the general characteristicsof this class o f models, we conjecture that a reduction rather than an elimina-tion of bias is the likely theoretical result. Given that the negative bias is alsodue in part to other failures in information markets and in informationprocessing as discussed in the introduction, it seems likely tha t persistence ofa bias toward negative campaigning is the most probable practical result, as itcould be sustained by, e.g., the existence of a significant minority of voters whoare somewhat inefficient in revising their priors.


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125 . C o n c l u s i o n s

I t s e em s a t t i m e s a s if p l e a d i n g s f o r a m o r e v i r t u o u s g o v e r n m e n t a r e o n l ys l ig h t ly m o r e c o m m o n t h a n s u r v e ys s h o w i n g t h e p u b l i c to r a n k t h e c r e d i b i l it yo f p o l it i c ia n s o n r o u g h l y t h e s a m e l e v el a s u s e d c a r s a le s m a n a n d p r o f e s s i o n a lw r e s t le r s . T h i s p a p e r h a s b e e n q u i t d e l i b e r a te l y d e s i g n e d t o d o s o m e t h i n gd i f f e r e n t - w e a r e n e i t h e r u r g i n g a m o r e h o n e s t g o v e r n m e n t ( a l t h o u g h t h a tm i g h t b e s o m e t h i n g w e w o u l d p r e f e r ) n o r p r e s e n t i n g e m p i r ic a l e v i d e n c e o f i tsc o r r u p t i o n . R a t h e r , w e a r g u e t h a t l y in g i s a r a t i o n a l r e s p o n s e t o t h e p e c u l i a ri n c e n ti v e s f a c e d b y p o l it i c ia n s . I n p a r t i c u l a r , w e h a v e a r g u e d , f i rs t , t h a t t h el a c k o f t r a n s f e r a b l e p r o p e r t y r i g h ts t o p o l it i c a l o f f i c e m a k e s i t l es s c o s tl y f o rt h e p o l i t i c i a n t o l ie . S e c o n d , w e h a v e c l a i m e d t h a t i f p o s i t i v e c l a im s c a n b e v e r i-f i e d m o r e e a s il y t h a n n e g a t i v e c la i m s , t h e r e m a y b e a n a t u r a l b i a s i n p o li ti c st o w a r d s n e g a t i v e c a m p a i g n i n g .

B e f o r e f i n is h i n g , w e s h o u l d m a k e c l e a r t h a t w e d o n o t r e g a r d o u r c l a i m s a sc o n c l u s i v e - p o l i ti c a l r h e t o r i c n e e d n o t a l w a y s b e le ss h o n e s t o r m o r e n e g a t i v et h a n c o m m e r c i a l s p e e ch . L y i n g is , a f t e r a ll , w a s t e f u l a n d s o t h e r e i s p o t e n t i a lb e n e f i t t o a l l i n t e r e s t e d p a r t i e s i n ru l e s , h a b i t s o r o t h e r i n s t i t u t i o n s t h a t l e s s e nd e c e p t i o n . I n p a r t i c u l a r , o u r m o d e l a s s u m e s n a i v e v o t e r s w h o d o n o t r e c o g n i z et h e a s y m m e t r i e s t h a t w e h a v e i d e n ti f i e d . C l e a r ly a n i n t e r e s ti n g a r e a o f f u t u r er e s e a rc h is t o m o d i f y o u r f o r m u l a t i o n t o c o n s i d e r th e c o n s e q u e n c e s o f m o r es o p h i s t i c a t e d v o t e r s .

I n t h is v e r y s i m p l i fi e d f o r m , t h o u g h , w e th i n k o u r a n a l y s i s m i g h t h e l p e x-p l a in w h y t h in g s l ik e i d e o l o g y a n d " d e c e n c y " s e e m t o b e m o r e i m p o r t a n t t oc o n s u m e r s i n p o l it ic a l m a r k e t s t h a n e c o n o m i c m a r k e t s . 6 C o n s u m e r s m i g h t n o tr e a l ly c a r e w h e t h e r t h e m a n w h o c o o k s t h e i r s o u p h a s a w a r m a n d l o v in g f a m i -l y , o r i s a m a l - a d j u s t e d h e r m i t . I n d e e d , t h e y m i g h t n o t e v e n c a r e i f h e l ik e s s o u p .H o w e v e r , s i n c e t h e p o l i ti c i a n is n o t s u b j e c t t o t h e s a m e m a r k e t f o r c e s a s t h es o u p m a n u f a c t u r e r , v o t e r s m i g h t l o o k f o r o t h e r s ig n s o f h o n e s t y . I n p a r t i c u l a r ,t h e y w o u l d l i k e t o k n o w t h a t t h e p o l i t i c i a n f o l lo w s a p e r s o n a l e t h i c t h a t v a l u e st r u t h ( i .e . , w o u l d f e e l g u i l t y b y l y i n g ), p e r h a p s a s e v i d e n c e d b y l a r g e a n d s t a b lef a m i l y o r m e m b e r s h i p i n w e l l -e s t a bl i sh e d c h u r c h . V o t e r s m i g h t a l s o f i n d c o m -f o r t i n a p o l i t ic i a n w h o f o l lo w s a w e l l - u n d e r s t o o d i d e o l o g y , s in c e th i s m a k e si t p o s s i b l e t o t e s t th e v e r a c i t y o f t h e p o l i t i c i a n ' s c l a i m s a g a i n s t t h i s i d e o l o g y .

W e w i l l e n d b y s u g g es ti n g t h a t m a n y o f t h e i n f o r m a t i o n a s s y m e t r i e s di s-c u s s e d h e r e i n t h e c o n t e x t o f p o l i ti c a l c o m p e t i t i o n w i ll e x is t in o t h e r s e tt in g sa s w e l l . I n S e c t i o n 2 w e t r i e d t o p o i n t o u t t h a t w h i l e w e b e l i e v e t h e s e p r o b l e m sa r e m o r e s e v e re in p o l i ti c a l m a r k e t s , t h e y e x i st in e c o n o m i c m a r k e t s a s w e l l.B u t t h e y w i ll a l so b e f o u n d i n o t h e r s e t ti n g s as w e ll . C o n s i d e r , f o r e x a m p l e , t w oe m p l o y e e s c o m p e t i n g f o r a p r o m o t i o n o r t w o s u i to r s c o m p e t i n g f o r t h e s a m ep e r s o n s a f f e c t i o n s . I n b o t h c a se s th e r i va l s m a y h a v e a n i n c e n t iv e t o e x a g g e r a t et h e i r v i rt u e s a n d d i s p a r a g e t h e i r r iv a ls . T h e a b i li t y o f t h e p o t e n t i a l e m p l o y e ro r l o v e r t o v e r i f y s u c h c l a i m s w i ll s u r e l y i n f l u e n c e t h e t y p e s o f li e s.


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13

No t e s

1 . O f c o u r s e t h e p r o p e r t y r i g h t s t o m a n y f i r m s , e s p e c ia l ly sm a l l p r o p r i e t o r s h i p a n d f i rm s b u i l to n t h e r e p u t a t i o n o f a p a r t i c u l a r i n d i v i d u a l , a r e n o t a l w a y s e a s il y t r a n s f e r r e d . S e e D i c k a n dL ot t ( 1993) f o r a d i s c us s i on .

2 . I n f a c t , t h i s i s o n l y o n e e x a m p l e o f h o w t h e l a c k o f p r o p e r t y r i g h t s t o p o l i t ic a l o f f ic e e x a c er -b a t e s t h e p r i n c i p a l - a g e n t r e l a t i o n s h i p b e t w e e n p o l i ti c i a n s a n d c o n s t i t u e n t s . F o r a r e v i e w o ft h e s e a r g u m e n t s a s w e l l a s s o m e e m p i r i ca l a n a l y s is o f t h e p r o b l e m s e e D a v i s a n d P o r t e r ( 1 9 8 9 )o r L o t t a n d D a v i s ( 19 92 ).

3 . I n e x t r e m e c a se s , t h e a d v e r t i se r m a y a d o p t a v e r y b r o a d d e f i n i t i o n o f s u b s t i t u t e g o o d s i n o r d e rt o f a c i l it a t e t h e n e g a t i v e c o m p a r i s o n . I n a n o t h e r r e c e n t T V c a m p a i g n f o r i n s t a n t o a t m e a l e n t i -t l ed " W h a t ' s H o t , W h a t ' s N o t " , c h i l d re n a r e i n f o r m e d t h a t c o n s u m i n g th e o a t m e a l w il l b em o r e p l e a s u r a b l e t h a n e i t h e r l i st e n i n g t o m u s i c p l a y e d o n o v e r s i z e d b a n j o s , f o l k d a n c i n g w i t hf a t p e o p l e i n p u b l i c s q u a r e s , o r r i d i n g a v e l o c i p e d e i n f o r m a l d r e s s.

4 . T o v e r i f y t h i s r e s u l t s o l v e ( 2 . 1 ) f o r P ' U P a n d s u b s t i t u t e i n t o 2 . 2 t o o b t a i n , u p o n c a n c e l l i n gt e r ms , ( V c p- v p ) = - ( vc n- v t n ) .

5 . L a f f o n t a nd T i r o l e ( 1993 : 630-634) c ons i de r t he c a se o f a n o f f i c i a l r e gu l a t i ng pub l i c u t i l it i e sw h o i s a n a g e n t o f v o t i n g u t i li t y c o n s u m e r s a n d w h o i s r e s p o n s i b l e fo r r e p o r t i n g t h e c o s t le v e lo f t h e u t i l it y . I f t h e u t i l it y m a k e s c o s t - r e d u c i n g i n v e s t m e n t s , t h e v o t e r s w o u l d l ik e t h e o f f ic i a lt o r e p o r t t h e c o s t r e d u c t i o n s i m m e d i a t e l y s o t h a t p r i c e r e d u c t i o n s c a n b e i m p l e m e n t e d . T h ef i r m , p r e f e r r i n g t o k e e p p r i c e h i g h w h i l e l o w e r i n g c o s ts t o o b t a i n t h e b e n e f i t s o f r e g u l a t o r y l a g ,m a y b r i b e t h e r e g u l a t o r to d i s h o n e s t l y r e p o r t h i g h c o s t t o t h e c o n s u m e r s . I n a f r a m e w o r k s i m i -l a r to t h e o n e d e s c r ib e d a b o v e , L a f f o n t a n d T i r o l e s o lv e f o r t h e s p e c ia l c a s e o f a n = 1 w h i l ea d d i n g a p p r o p r i a te a d d i t io n a l s t r u c tu r e a n d c o n c lu d e t h a t " c a r e e r c o n c e r n s m a y r e d u ce t h eg o v e r n m e n t ' s i n c e n t iv e t o c o l l u d e ( w i t h r e g u l a t e d f i r m s ) " .

6 . L o t t (1 98 7), f o r e x a m p l e , h a s s t r e s s e d t h e v a l u e o f i d e o l o g y i n s o l v i n g a g e n c y p r o b l e m s i n p o l i t-i c a l m a r k e t s .

References

A k e r l o f , G . A . (1 97 0) T h e m a r k e t f o r ' l e m o n s ' : Q u a l it y u n c e r t a in t y a n d t h e m a r k e t m e c h a n i s m .Q u a r t er l y J o u r n a l o f E c o n o m i c s 84(August ) : 488-500.C r a w f o r d , V . P . a n d S o b e l , J . ( 1 98 2) S t r a te g i c i n f o r m a t i o n t r a n s m i s s i o n . E c o n o m e t r i c a50( N ove mbe r ) : 1431- 1452 .

D a v i s , M . L . a n d P o r t e r , P . K . ( 1 98 9 ) M e a s u r i n g p u r e a n d a p p a r e n t i d e o l o g y i n c o n g r e s s i o n a lv o t i n g . P u b l i c C h o i c e 60(2): 101-112.

D i c k , A . R . a n d L o t t , J . R . ( 1 9 93 ) R e c o n c i l in g v o t e r b e h a v i o r w i t h t e r m l i m i t s . J o u r n a l o f P u b l icE c o n o m i c s 50( O c t obe r ) : 1 - 14 .

K l e i n, B . a n d L e f f le r , K . ( 1 98 1) T h e r o l e o f m a r k e t f o r ce s i n a s s u ri n g c o n t r a c t u a l p e r f o r m a n c e .J o u r n a l o f P o l i ti c a l E c o n o m y 89: 615-641.

L a f f o n t , J . - J . a n d T i r o l e , J . ( 19 9 3 ) A t h e o r y o f i n c e n ti v e s i n p r o c u r e m e n t a n d r e g u l a t io n . C a m -b r i d g e , M A : M I T P r e s sL o t t , J .R . ( 1987) P o l i t i c a l c he a t i ng . P u b l i c C h o i c e 52(2): 169-187.

L o t t , J .R . a nd D a v i s , M.L . ( 1992) A c r i t i c a l r e v i e w a nd e x t e ns i on o f t he po l i t i c a l sh i r k i n g l i t e r a -t u r e . P u b l i c C h o i c e 74: 461-484.

M c P h e r s o n , J . ( 1 9 8 7 ) T h e b a t tl e c r y o f f r e e d o m . N e w Y o r k ; O x f o r d U n i v e r s i t y P r e s s .T u l l oc k , G . ( 1967) T o w a r d a m a t h e m a t i c s o f p o li ti c s. A n n A r b o r : U n i v e r s it y o f M i c h ig a n P r e ss .

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Davis - Why Do Politicians Lie