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Supermajority Voting Rules: Balancing Commitment and Flexibility

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  • Ernesto Dal Bo

Abstract

When optimal policymaking is subject to dynamic inconsistencies (Kydland and Prescott, 1977), but shocks hit the economy after private agents form expectations, there is a trade off between the need to commit to a policy, and the need to retain discretion so as to respond to shocks. Rogoff (1985) shows that a way to strike the right balance between commitment and flexibility in monetary policy is to appoint a conservative central banker. I show that a rationale for using a committee to make decisions through voting is that a commitment device can be created out of it, without totally renouncing flexibility to respond to unexpected contingenices. Appropriate voting procedures and a well chosen supermajority rule can make a randomly sampled committee behave like Rogoff`s optimally conservative central banker. The model is developed for the case of monetary policy but these insights are more general (extending to capital taxation and patent protection). Supermajority rules can mitigate time inconsistency by introducing a status quo bias. When voting institutions (ie. the committee`s constitution) are endogenously chosen by simple majority voting, the emerging majority rule is the supermajority yielding the mix of commitment and flexibility preferred by the median voter. A corollary to this provides a theory of why constitutional reform typically requires the approval of a supermajority.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 132.

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Date of creation: 01 Nov 2002
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Handle: RePEc:oxf:wpaper:132

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Keywords: supermajorities; committees; commitment versus flexibility; voting; endogenous institutions; endogenous constitutions;

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References

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  1. Salvador BARBER?Author-Email: salvador.barbera@uab.es & Matthew O. JACKSON, 2003. "Choosing How to Choose: Self-Stable Majority Rules and Constitutions," UFAE and IAE Working Papers 596.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Matthias Messner & Mattias K. Polborn, 2004. "Voting on Majority Rules," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 115-132.
  3. Philippe Aghion & Albero Alesina & Francesco Trebbi, 2002. "Endogenous Political Institutions," Harvard Institute of Economic Research Working Papers 1957, Harvard - Institute of Economic Research.
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  7. Waller, Christopher J, 1992. "The Choice of a Conservative Central Banker in a Multisector Economy," American Economic Review, American Economic Association, vol. 82(4), pages 1006-12, September.
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  13. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  14. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
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  16. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  17. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
  18. Gradstein, Mark, 1999. "Optimal taxation and fiscal constitution," Journal of Public Economics, Elsevier, vol. 72(3), pages 471-485, June.
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  20. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
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