Electoral Gambles: Why Politicians Choose Risky Policies
We extend a standard two-period electoral accountability model with two types of politicians by allowing incumbents to choose both the mean and the variance of policy outcomes. Without electoral incentives, both types prefer the lowest variance. We show that when the value of holding office is high enough, however, the low type may strategically increase variance to raise the chance of re-election, at the expense of voter welfare. This goes against the usual responsiveness result that higher office benefit provides incentives for the low-type incumbent to behave in the best interest of the voters.