A Principal-Agent Model of Elections with Novice Incumbents

Abstract

The efficient aggregation of information is a prerequisite for the operation of a democratic system. In order for political office-holders to act responsively so that policy outcomes reflect public sentiments, sufficient levels of information about their actions must be aggregated within the electorate. This is fundamental since very few citizens will be aware of the office-holder’s actions. One way in which information is aggregated is through public opinion polls. This mechanism extracts information from informed citizens and transmits it in a manner so that collectively the electorate behaves as if it were fully informed. We examine this aggregation process within a principal-agent model of elections. We further assume novice incumbents whose choices are more uncertain than experienced public officials. A rational expectations equilibrium is specified in which uninformed citizens condition their beliefs on poll results. Laboratory experiments are conducted to test the predictions of the model. We find that, compared to competing models, a rational expectations hypothesis best explains the aggregation process.