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Gambling over Public Opinion

Author

Listed:
  • Deepal Basak
  • Joyee Deb

Abstract

We consider bargaining environments in which public opinion provides leverage by making compromises costly. Two parties make initial demands, before knowing the public opinion. If deadlocked, they can bargain again after public opinion forms, but suffer reputation costs if they compromise, i.e., scale back their demands. We show that in equilibrium, parties may choose to make incompatible demands initially and gamble over public opinion even though one or both parties must bear a cost later. We characterize when deadlocks arise, and how this affects the welfare of the public in a representative two-party democracy compared to a direct democracy.

Suggested Citation

  • Deepal Basak & Joyee Deb, 2020. "Gambling over Public Opinion," American Economic Review, American Economic Association, vol. 110(11), pages 3492-3521, November.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:11:p:3492-3521
    DOI: 10.1257/aer.20181495
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    Citations

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    Cited by:

    1. Emin Karagözoğlu & Kerim Keskin & Çağrı Sağlam, 2023. "(In)efficiency and equitability of equilibrium outcomes in a family of bargaining games," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 175-193, March.
    2. Helios Herrera & Antonin Macé & Matias Nùnez, 2023. "Political Brinkmanship and Compromise," Working Papers halshs-03225030, HAL.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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