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On Dynamic Compromise

  • Bowen, T. Renee

    (Stanford University)

  • Zahran, Zaki

    (Research and Innovation Centre, Watson Wyatt Worldwide, London)

What prevents majorities from extracting surplus from minorities in legislatures? We study an infinite horizon game where a legislative body votes to determine distributive policy each period. Proposals accepted by a simple majority are implemented, otherwise the status quo allocation prevails. We construct a symmetric Markov perfect equilibrium that exhibits compromise in the following sense: if the initial status quo allocation is "not too unequal", then the Markov process is absorbed into allocations in which more than a minimum winning majority receives a positive share of the social surplus with positive probability. The compromise is only sustainable if, starting from the "unequal" allocations, the Markov process is absorbed into allocations in which there is a complete absence of compromise. The compromise equilibrium exists when discounting is neither too small nor too large. We find that, contrary to intuition, the range of discount factors for which this equilibrium exists increases as the number of legislators increases. In this sense, compromise is easier in larger legislatures.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2020.

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Date of creation: Mar 2009
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Handle: RePEc:ecl:stabus:2020
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  1. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-36, March.
  2. Matthew Haag & Roger Lagunoff, 2002. "On the Size and Structure of Group Cooperation," Game Theory and Information 0209005, EconWPA.
  3. Battaglini, Marco & Palfrey, Thomas R., 2007. "The dynamics of distributive politics," Working Papers 1273, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Diermeier, Daniel & Merlo, Antonio, 2000. "Government Turnover in Parliamentary Democracies," Journal of Economic Theory, Elsevier, vol. 94(1), pages 46-79, September.
  5. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
  6. Tasos Kalandrakis, 2010. "Minimum winning coalitions and endogenous status quo," International Journal of Game Theory, Springer, vol. 39(4), pages 617-643, October.
  7. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
  8. Duggan, John & Kalandrakis, Tasos, 2012. "Dynamic legislative policy making," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1653-1688.
  9. Pecorino, Paul, 1999. "The effect of group size on public good provision in a repeated game setting," Journal of Public Economics, Elsevier, vol. 72(1), pages 121-134, April.
  10. Ignacio Ortuno-Ortin & Anke Gerber, 1998. "Political compromise and endogenous formation of coalitions," Social Choice and Welfare, Springer, vol. 15(3), pages 445-454.
  11. Olivier Compte & Philippe Jehiel, 2004. "Bargaining over Randomly Generated Offers: A new Perspective on Multi-Party Bargaining," Levine's Bibliography 122247000000000739, UCLA Department of Economics.
  12. Daniel Diermeier & Pohan Fong, 2011. "Legislative Bargaining with Reconsideration," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 947-985.
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