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Bargaining over governments in a stochastic environment

  • Merlo, Antonio

In this paper we structurally estimate a game-theoretic model of government formation in a multiparty parliamentary democracy. We focus on the timing and the terms of government agreements in the context of a multilateral stochastic model of sequential bargaining with complete information (Merlo and Wilson (1194, 1995)) where efficient delays may occur in the unique equilibrium. Besides showing that our model yields a good fit to the data on the duration of negotiations over government formation as well as government durations in postwar Italy, we use our estimates to quantify the advantage to proposing and to conduct policy experiments to evaluate the effects of changes in the bargaining procedure. We show that the gains from proposing tend to be quite large. Also, we show that changes in the proposer selection process would not affect either the duration of negotiations or government durations, while the imposition of a strict deadline would in general reduce the incentives to delay agreement as well as government durations.

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File URL: http://purl.umn.edu/7476
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Paper provided by University of Minnesota, Economic Development Center in its series Bulletins with number 7476.

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Date of creation: 1996
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Handle: RePEc:ags:umedbu:7476
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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  2. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
  3. Kennan, John, 1995. "Repeated contract negotiations with private information," Japan and the World Economy, Elsevier, vol. 7(4), pages 447-472, November.
  4. Antonio Merlo & Charles Wilson, 1997. "Efficient delays in a stochastic model of bargaining," Economic Theory, Springer, vol. 11(1), pages 39-55.
  5. Merlo, Antonio, 1991. "An Econometric Analysis of Government Tenure Histories: The Italian Case," Working Papers 91-28, C.V. Starr Center for Applied Economics, New York University.
  6. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  7. Austen-Smith, David & Banks, Jeffrey., 1987. "Elections, Coalitions, and Legislative Outcomes," Working Papers 643, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Eckstein, Z. & Wolpin, K.I., 1992. "Duration to First Job and the Return to Schooling : Estimates form a Search -Matching Model," Papers 13-92, Tel Aviv.
  9. Peter Cramton & Joseph S. Tracy, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," Papers of Peter Cramton 92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  10. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  11. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S87-130, Supplemen.
  12. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  13. Lippman, Steven A. & McCall, John J., 1976. "Job search in a dynamic economy," Journal of Economic Theory, Elsevier, vol. 12(3), pages 365-390, June.
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