APPLIED MICRO: Bad Democracy Traps; Professor Gabriele Gratton (University of New South Wales)

Abstract:

We study how political culture affects a democracy's ability to pursue ambitious and risky policy agendas. We conceptualize a democracy's political culture as voters' possibly misspecified beliefs about the quality of the political class and of the country's institutions. Within a standard model of political agency, political culture drives both voters' choice of whether to elect politicians who propose ambitious agendas and politicians' behavior once elected. We propose a mechanism for cultural selection based on self-confirming equilibria. Our cultural equilibrium captures the idea that stable cultures must be consistent with long-term observations of political and economic outcomes. Therefore, in our model, reality constrains culture, but we show that culture can persist despite institutional changes. Negative cultures can trap democracy and positive cultures allow democracy to outperform with respect to the true quality of its political class. We explore and confirm the empirical relevance of our selection mechanism in an online survey experiment.

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