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Markov Equilibrium in Models of Dynamic Endogenous Political Institutions

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Author Info
Roger Lagunoff (Georgetown University) () (Department of Economics, Georgetown University)

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Abstract

This paper examines existence of Markov equilibria in the class of dynamic political games (DPGs). DPGs are dynamic games in which political institutions are endogenously determined each period. The process of change is both recursive and instrumental: the rules for political aggregation at date t+1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. Equilibrium existence in dynamic political games requires a resolution to a political fixed point problemin which a current political rule (e.g., majority voting) admits a solution only if all feasible political rules in the future admit solutions in all states. If the class of political rules is dynamically consistent, then DPGs are shown to admit political fixed points. This result is used to prove two equilibrium existence theorems, one of which implies that equilibrium strategies, public and private, are smooth functions of the economic state. We discuss practical applications that require existence of smooth equilibria. Classification-JEL Codes: C73, D72, D74

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~05-05-07.

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Handle: RePEc:geo:guwopa:gueconwpa~05-05-07

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Keywords: Recursive; dynamic political games; political fixed points; dynamically consistent rules;

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  1. Egorov, Georgy & Guriev, Sergei & Sonin, Konstantin, 2006. "Media Freedom, Bureaucratic Incentives and the Resource Curse," CEPR Discussion Papers 5748, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. George Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Non-Democratic Succession," Economics Working Papers 0054, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  3. Gradstein, M., 2007. "Institutional Traps and Economic Growth," Cambridge Working Papers in Economics 0769, Faculty of Economics, University of Cambridge. [Downloadable!]
  4. Tasos Kalandrakis, 2007. "Majority Rule Dynamics with Endogenous Status Quo," Wallis Working Papers WP46, University of Rochester - Wallis Institute of Political Economy. [Downloadable!]
  5. John Duggan & Tasos Kalandrakis, 2007. "Dynamic Legislative Policy Making," Wallis Working Papers WP45, University of Rochester - Wallis Institute of Political Economy. [Downloadable!]
  6. Georgy Egorov & Konstantin Sonin, 2005. "The Killing Game: Reputation and Knowledge in Politics of Succession," Game Theory and Information 0505003, EconWPA. [Downloadable!]
  7. William Jack & Roger Lagunoff, 2005. "Social Conflict and Gradual Political Succession: An Illustrative Model," Levine's Bibliography 784828000000000534, UCLA Department of Economics. [Downloadable!]
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