Events at CERGE-EI

Martin Vaeth, MSc.

Princeton University, United States

Abstract: We model electoral competition between two parties when voters can rationally learn about their political positions through flexible information acquisition. Rational voter learning generates polarized and aligned political preferences, even when voters’ true positions are unimodally distributed and independent across policy issues. When parties strategically select their positions, voter and party polarization mutually reinforce each other, and both rise as information costs decline. Because we show voters learn exclusively about the axis of party disagreement, party positions respond to only one dimension of aggregate shocks to voter preferences. We then adapt our model to a market setting with horizontally differentiated goods when consumers learn about their product preferences. Lower information costs increase product differentiation and moreover enable firms to charge higher markups, reducing consumer welfare. These results show how lower information costs can reduce welfare in both political and economic contexts.

Full Text: Rational Voter Learning, Issue Alignment, and Polarization