Two Views Of Economic Voting Prospective And Retrospective
Key: “Voters may reject what they have known; or they may approve what they have known. They are not likely to be attracted in great numbers by promises of the novel or unknown” (1966, 61). For retrospective voters, bygones are never bygones (as they are under a purely forward-looking orientation), but rather comprise the driving force of political valuation and electoral choice.8 In the generation since the rational expectations revolution in economic theory, with its strong and often compelling emphasis on forward-looking behavior, pure retrospective voting frequently has been described as naive and irrational. Those characterizations have a certain normative, even messianic quality about them, but from a positive point of view are misguided. Building on a germinal paper of Barro (1973), Ferejohn (1986) constructed a well-known micro-founded model of Key’s main arguments, with aggregate implications that have received much stronger support in data than prospective voting models. The central idea is that the electorate stands in a principal–agent relation to the incumbent party.
Voters settle up with their agents by evaluating performance ex post for much the same reason—moral hazard—that insurance premiums are typically experience rated and that compensation of top corporate executives is generally heavily dependent upon past increases in share prices. Under pure retrospective valuation, promises to do better in the future are discounted completely, and exert no influence on voting choices. Instead, retrospective theory emphasizes the efficiency of inducing governing parties always to do their best in certain knowledge that voting settlements will be based on observed outcomes over the term, no matter how attractive are (inherently unenforceable) commitments to improve in the future. Opposition parties merely function as replacements on occasions when incumbents do not satisfy a fixed, attainable standard of performance. In order for the underlying micro model to pass through, voters must react to macroeconomic performance, rather than to individual benefits (“sociotropic” voting), which in turn presumes implicit coordination among voters (and perhaps among party agents as well) in application of collectivist or utilitarian valuation standards.9 If voting behavior were individualistic (“egotropic”), incumbents could pursue a divide and rule strategy by exploiting distributive conflicts in the electorate, and thereby mitigate, or perhaps avoid completely, the discipline of having to satisfy a minimal standard of macroeconomic performance augmenting aggregate welfare. A further implication of a principal–agent motivation of retrospective voting, though not a strict requirement, is that the electorate should evaluate performance over the incumbent’s entire term of office, with little or no backward time discounting of performance outcomes..
