War Chests and Information
matter who is the challenger, strong incumbents exert a significant amount of effort to deter
a high quality challenger from entering the second election, even though they are unsure that
they will even make it to the second election.
In the second election (in either model), stronger incumbents have war chests to draw on
to defeat their low quality challengers. Thus, they do not need to raise as much money to
deter the high quality challenger for the second election.
With or without uncertainty, weak incumbents find it too costly to imitate strong incum-
bents, and thus reveal their strength when they raise funds in the first election. In the model
without uncertainty, weak incumbents compound their weakness by drawing high quality
challengers in the first election, and must spend all of the money they raised to fend them
off. They act knowing that they will face a high quality challenger in the first election, and in
the second election as well. Because they know that they will face a high quality challenger
in each election, they have no incentive to save any money, for savings or deterrence–every
day is a rainy day. Relative to other weak incumbents that reveal their strength, the weakest
incumbents raise (and spend) less than others. Weak incumbents act similarly in the model
with uncertainty. The only difference is that they are not certain to run against the high
quality challenger in the first election. If weak incumbents have somehow defeated the (high
quality) challengers in the first election (having spent all of their money), they are again
made weaker by drawing a high quality challenger in the second election. Anticipating the
entry of high quality challengers, they raise their optimal amount, and spend it all.
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Convention