Information Contagion in Coelection Environments: Theory and Evidence from Entry and Exit of Senators∗

It is well-known that the electorate in midterm elections is more ideologically extreme than the electorate in presidential elections; yet, surprisingly, we find that United States senators that are elected in midterm elections are consistently more ideologically moderate than those first elected in presidential elections. Furthermore, senators who are ousted or retire from office around presidential elections are significantly more ideologically moderate than those who exit around midterm elections. We propose a theory in which the presence of party labels enables voters to rationally update their beliefs about candidates across contemporaneous races for office. Wide support for a candidate in one race aids marginal candidates from the same party in other races. Our model generates predictions that are consistent with our new findings as well as a broad set of phenomena from the literature and suggests that unbiased public signals, such as party labels, may have unexpected effects on the aggregation of private information and preferences. Our empirical findings illustrate that simple elements of institutional design may not be outcome-neutral and may profoundly impact the extent to which duly-elected representatives reflect their constituents’ preferences. ∗We thank our advisors David Austen-Smith, Timothy Feddersen and Thomas Hubbard, Yosh’s advisor William Rogerson, as well as Dan Bernhardt, Mattias Doepke, Ben Jones, Kei Kawai, John Patty, Alessandro Pavan, Erik Snowberg, Francesco Trebbi, Yasutora Watanabe, and participants at Northwestern’s IO Lunch and Theory Bag Lunch Seminars, Kellogg’s Management and Strategy Lunch Seminar, MPSA, the Econometric Society’s Summer Meeting and APSA; This paper reflects work that is described in more detail in two separate papers, “Consistent Biases in Electoral Environments: Evidence from Entry and Exit of Senators” and “Party Labels and Information: The Implications of Contagion in Coelection Environments.” Yosh thanks William Rogerson for his suggestions for and encouragement on combining both papers. †Department of Economics, Northwestern University, [email protected] ‡Department of Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, [email protected]