Political Distortions and Endogenous Turnover∗

We study the best sustainable equilibrium in an economy with non-benevolent policymakers who lack commitment and have private information. In this environment, households discipline policymakers by threatening to remove them from power. Policymakers are never replaced and there are no distortions to production if there is perfect information. We present three results which emerge once private information is introduced. First, we generalize the endogenous turnover result of Ferejohn (1986): an incumbent always faces a positive probability of replacement starting from the initial date in power since this provides him incentives to not privately rent-seek. Second, we show that the presence of endogenous turnover generates distortions to production. These distortions emerge so as to limit the resources which can be expropriated by a policymaker facing replacement. Finally, policymakers are always replaced and distortions to production never vanish in the long run.