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This paper provides a game-theoretic model of representative democracy with endogenous party formation. Coalition formation may occur before and after elections, and the expected payoffs from the after-election majority game affect incentives-to form parties before the elections. In this way Duverger's hypothesis can be formally explained by the strategic behavior of political elites. If politicians care primarily about private benefits, the equilibrium policy outcome under a proportional electoralsystem coincides with the median party's position. On the other hand, with quasilinear utility, the.distance from the median voter outcome may be lower with plurality rule.

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This report has been published in Oxford Journals, Social Sciences, Review of Economic Studies, Volume 71, Issue 3, pp. 829-853.