Investigating the Effect of Campaign Advertising Expenditures on Candidate Quality Signaling in an Election

The electoral market has the asymmetric information between candidates and voters with regard to
candidate quality characteristics, and the asymmetric information causes the adverse selection
problem in the electoral market. In an electoral market, if voters cannot distinguish between goodquality
and bad-quality candidates before voting, bad-quality candidates may drive good-quality ones
out of the election market: this is known as electoral lemon problem. That is, good-quality candidates
may not win the election against bad-quality populist ones. This electoral lemon problem due to
adverse selection can be eliminated or reduced by the screening by voters or by the signaling by highquality
candidates. Voters can screen candidate quality or candidates may send signal to voters. We
attempt to examine the signaling model by candidates to inform voters that they are of high quality
through campaign advertising and its expenditures. We examine a signaling model to explain the
empirical results in which incumbent candidates have substantial positive effect on votes and also
inefficient outcome from higher spending. Campaign expenditures can increase vote productivity. The
campaign advertising of candidates serves to identify the candidates who possess high-quality
characteristics. In reality, campaign expenditures can be spent by candidates for the purpose of
sending a signal for candidate’s personal quality. But quality signaling is often unproductive and thus
results in the inefficient outcome. The variable representing the candidate quality is not directly
observable and thus immeasurable. In the absence of a good measure of candidate quality, attempts
to estimate its effect will suffer from biased estimates. Because of this, further research should be
focused on the development of estimation technique to measure candidate quality.