The Role of Party Factions: An Information Aggregation Approach

We study the endogenous formation of factions in the context of information aggregation. We model consultations within a party that lead to the design of its policy platform. Control rights over the design of the platform are allocated to party politicians with idiosyncratic ideological biases. Final outcomes are affected by fundamentals over which politicians hold private information. Politicians can strategically communicate and voluntarily delegate their decision making authority. The delegation procedure determines the party factional structure. Whilst in principle this structure can be very complex, we show that, in any equilibrium, the party is divided in disjoint factions each with a single leader. We then calculate factional structure in simplified parties with many ideologically different politicians. Doing so we establish a positive role for factions: policy outcomes can not be directly predicted from the ideological structure of the party, so factions matter; and a factionalised party may outperform a non-factionalised one, and offer a second-best alternative to centralized authority under a moderate leader. We reinforce this message by studying different communication rules across and within factions that may change the equilibrium factional structure.