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Informational loss in bundled bargaining

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  • Ying Chen

    (Arizona State University, Tempe, AZ, USA)

  • Hülya Eraslan

    (Johns Hopkins University, Baltimore, MD, USA)

Abstract

We analyze a legislative bargaining game over an ideological and a distributive issue. Legislators are privately informed about their ideological positions. Communication takes place before a proposal is offered and majority-rule voting determines the outcome. We compare the outcome of the ‘bundled bargaining’ game in which the legislators negotiate over both issues together to that of the ‘separate bargaining’ game in which the legislators negotiate over the issues one at a time. Although bundled bargaining allows the proposer to use transfers as an instrument for compromise on the ideological issue, we identify two disadvantages of bundled bargaining under asymmetric information: (i) ‘risk of losing the surplus’ (failure to reach agreement on ideology results in the dissipation of the surplus under bundled bargaining, but not under separate bargaining); (ii) ‘informational loss’ (the legislators may convey less information in the bundled bargaining game). Even when there is no risk of losing the surplus, the informational loss from bundling can be sufficiently large that it makes the proposer worse off.

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Bibliographic Info

Article provided by in its journal Journal of Theoretical Politics.

Volume (Year): 25 (2013)
Issue (Month): 3 (July)
Pages: 338-362

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Handle: RePEc:sae:jothpo:v:25:y:2013:i:3:p:338-362

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Keywords: Cheap talk; communication; information; legislative bargaining;

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  1. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  2. Robert Gibbons & Joseph Farrell, 1988. "Cheap Talk Can Matter in Bargaining," Working papers 482, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Diermeier, Daniel & Merlo, Antonio, 1998. "Government turnover in parliamentary democracies," Bulletins 7453, University of Minnesota, Economic Development Center.
  4. Ying Chen & Hülya Eraslan, 2010. "Rhetoric in Legislative Bargaining with Asymmetric Information," Koç University-TUSIAD Economic Research Forum Working Papers 1021, Koc University-TUSIAD Economic Research Forum.
  5. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
  6. Jackson, Matthew O. & Moselle, Boaz, 2002. "Coalition and Party Formation in a Legislative Voting Game," Journal of Economic Theory, Elsevier, vol. 103(1), pages 49-87, March.
  7. Matthews, Steven A. & Postlewaite, Andrew, 1989. "Pre-play communication in two-person sealed-bid double auctions," Journal of Economic Theory, Elsevier, vol. 48(1), pages 238-263, June.
  8. Matthews, Steven A, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 347-69, May.
  9. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  10. Bård Harstad, 2007. "Harmonization and Side Payments in Political Cooperation," American Economic Review, American Economic Association, vol. 97(3), pages 871-889, June.
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