A model of referendum

Abstract

This study provides a theoretical framework to understand how campaign advertising works in a referendum. Our model analyzes a referendum with a straight choice between two alternatives, Yes or No. In this model, after the parties decide their policies, they promise benefits to voters during the campaign, which ultimately results in a fiscal cost and, thus, a burden to the voters themselves. We construct a two-party two-stage game in which parties choose a policy in the first stage and the benefits in the second stage. We show that one party shifts to a more extreme (polarized) position in an equilibrium.