IRREVERSIBLE INVESTMENTS, DYNAMICINCONSISTENCY AND POLICY CONVERGENCE

We study a model where two parties, one from the left and one from the right, compete forposition. The election is to be held in the near future and the outcome is uncertain. Prior to theelection, the members of both parties nominate their prime ministerial candidates. Investorscare about the outcome since they may invest in irreversible domestic production capital. Wefind that there is political convergence in the nomination process. In some circumstances, it isonly the median voter of the left-wing party that elects a more moderate candidate...