Centre for Development Economics
Department of Economics, Delhi School of Economics


The Lottery of Life and Policy Persistence


Parikshit Ghosh and Rohini Somanathan

Department of Economics, Delhi School of Economics, University of Delhi

Thursday, 27th August 2015 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

This paper offers a new framework for understanding political failure in democracies. Infinitely lived agents choose a policy every period via majority voting. Voters' payoffs are subject to idiosyncratic and transient stochastic shocks. In Markov perfect equilibria, there may be inefficient and stochastic delays in the adoption of policies that are better for a majority of voters in the long run. There is also policy persistence: a policy is more likely to be chosen when it is the status quo. Reduced economic mobility generates political pressure against redistribution and holding elections less frequently may increase welfare. We discuss several applications, including social security, universal health care, unemployment benefits and technological change.

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