Downsian Model with Asymmetric Information: Possibility of Policy Divergence

This paper presents a model of Downsian political competition in which voters are imperfectly informed about economic fundamentals. In this setting, parties’ choices of platforms influence voters ’ behavior not only through voters ’ prefer-ences over policies, but also through formation of their expectation on the unknown fundamentals. We show that there exist pure-strategy equilibria in this political game with asymmetric information at which the two parties ’ policies diverge with positive probability. This result is in contrast with the well-known median voter theorem in the classical model of Downsian competition. We also study refinement of equilibria, and identify the perfect equilibria (Selten, 1975) and the strictly per-fect equilibria (Okada, 1981). The Nash equilibria with the strongest asymmetry in the parties ’ strategies are proved to be strictly perfect. ∗I wish to thank Professor Koichi Tadenuma for his helpful comments and suggestions. 2