Monday 4 October 2010

Mayoral politics and nondiscretionary earthquakes

At least a few folks were puzzled by iPredict's fairly quick incorporation of earthquake effects into the Christchurch mayoral race, with a massive shift from challenger Anderton to incumbent Parker. Some folks on the forums, probably trying to talk up the value of their defunct Anderton shares, and some media commentators, wondered why sentiment could possibly have shifted so quickly to Parker when nothing about the world, or at least nothing that ought to be politically relevant, seemed to have changed. Sure, there was an earthquake, and sure, Parker was getting lots of press coverage. But why would voters so radically change their assessment of the candidates' relative merits when neither of them had really changed?

One of my favourite political business cycle stories is Hess and Orphanides' 1995 AER piece "War Politics"; I use it whenever I'm teaching public choice.

Stripped down, the model works as follows. An incumbent President can demonstrate competence on two dimensions: economic performance or war leadership. Demonstrating competence in either increases chances of re-election. A first-term President (who can be re-elected) presiding over a poor economy will have stronger incentive to engage in discretionary war than either a lame duck or one who has presided over a strong economy. They test this back over a lengthy time horizon and find evidence supporting the model.

So what's happened here in Christchurch? The second dimension has opened up, albeit without it having been a choice variable for the incumbent (though some think it was a discretionary earthquake). Folks who'd previously assessed Parker as being incompetent were given evidence of his seeming competence in handling a major crisis. New information was revealed even if neither Parker nor Anderton had changed. And so voters were expected to change allegiance, and so the markets moved, and so too then did subsequent polls. The market moved well in advance of any polling and to about the right level given the subsequent poll numbers.

My only hope for my legacy Anderton shares (recall that internet was down for me for rather a while and I was locked out of my office, and that after the price change, there's little point in backing out of the position if the going price seems about right) is that Parker announces that his wife will be in charge of ensuring a unified architectural vision for the city's rebuilding. Maybe that chance is why Anderton is still around 10 cents.

1 comment:

  1. You have to hand it to Bob, the delay on if the council will hand out ratepayers cash to bail out property owners delayed to a wednesday meeting when utterly coincidently postal votes will have to be posted. Brilliant and shades of the council building/last election.
    I didnt want to vote for him but I just couldnt bring myself to vote for an ancient unreformed socialist.
    Strangely one of the mayrol candidates is my neighbour whose out of control dog keeps terrorizing my cat and we get a mention in his mayrol pitch, as "pc cat lovers" responsible for the council IT department and Hendo funding Parkers election campaign.