Elections, uncertainty and irreversible investment

TitleElections, uncertainty and irreversible investment
Publication TypeJournal Article
Year of Publication2014
AuthorsCanes-Wrone B, Park JKwang
JournalBritish Journal of Political Science
ISBN Number0007123412000
AbstractThis article argues that the policy uncertainty generated by elections encourages private actors to delay investments that entail high costs of reversal, creating pre-election declines in the associated sectors. Moreover, this incentive depends on the competitiveness of the race and the policy differences between the major parties/candidates. These arguments are tested using new survey and housing market data from the United States. The survey analysis assesses whether respondents' perceptions of presidential candidates' policy differences increased the likelihood that they would delay certain purchases and actions. The housing market analysis examines whether elections are associated with a pre-election decline in economic activity, and whether any such decline depends on electoral competitiveness. The results support the predictions and cannot be explained by existing theories.