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Mandatory versus Discretionary Spending: The Status Quo Effect

Author Info

  • Bowen, T. Renee

    (Stanford University)

  • Chen, Ying

    (AZ State University)

  • Eraslan, Hulya

    (Johns Hopkins University)

Abstract

Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2121.

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Date of creation: Oct 2012
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Handle: RePEc:ecl:stabus:2121
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Find related papers by JEL classification:
  • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
  • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
  • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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  1. Vincent Anesi, 2007. "Noncooperative Foundations of Stable Sets in Voting Games," Discussion Papers 2007-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. marina, azzimonti, 2009. "Barriers to investment in polarized societies," MPRA Paper 25936, University Library of Munich, Germany.
  3. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2009. "Power Fluctuations and Political Economy," EIEF Working Papers Series 0911, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2009.
  4. John Duggan & Tasos Kalandrakis, 2007. "Dynamic Legislative Policy Making," Wallis Working Papers WP45, University of Rochester - Wallis Institute of Political Economy.
  5. Wioletta Dziuda & Antoine Loeper, 2010. "Dynamic Collective Choice with Endogenous Status Quo," Discussion Papers 1514, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Vincent Anesi & Daniel J Seidmann, 2012. "Bargaining in Standing Committees," Discussion Papers 2012-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. Facundo Piguillem & Alessandro Riboni, 2012. "Dynamic Bargaining over Redistribution in Legislatures," EIEF Working Papers Series 1206, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2012.
  8. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
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Cited by:

  1. Jan Zapal, 2014. "Simple Markovian Equilibria in Dynamic Spatial Legislative Bargaining," CERGE-EI Working Papers wp515, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  2. Bowen, T. Renee & Chen, Ying & Eraslan, Hulya & Zapal, Jan, 2014. "Efficiency of Flexible Budgetary Institutions," Working Papers 14-031, Rice University, Department of Economics.
  3. Ying Chen & Hulya Eraslan, 2015. "Dynamic Agenda Setting," Koç University-TUSIAD Economic Research Forum Working Papers 1517, Koc University-TUSIAD Economic Research Forum.
  4. Facundo Piguillem & Alessandro Riboni, 2015. "Spending-Biased Legislators: Discipline Through Disagreement," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 901-949.
  5. Barseghyan, Levon & Coate, Stephen, 2014. "Bureaucrats, voters, and public investment," Journal of Public Economics, Elsevier, vol. 119(C), pages 35-48.
  6. Jon X. Eguia & Kenneth A. Shepsle, 2014. "Endogenous Assembly Rules, Senior Agenda Power, and Incumbency Advantage," Bristol Economics Discussion Papers 14/638, Department of Economics, University of Bristol, UK.
  7. Marina Azzimonti & Marco Battaglini & Stephen Coate, 2015. "The Costs and Benefits of Balanced Budget Rules: Lessons from a Political Economy Model of Fiscal Policy," Department of Economics Working Papers 15-03, Stony Brook University, Department of Economics.
  8. Gersbach, Hans & Muller, Philippe & Tejada, Oriol, 2016. "The Effects of Higher Re-election Hurdles and Costs of Policy Change on Political Polarization," CEPR Discussion Papers 11375, C.E.P.R. Discussion Papers.
  9. Grechyna, Daryna, 2016. "The Structure of Government Spending and the Business Cycle," MPRA Paper 72029, University Library of Munich, Germany.
  10. Tasos Kalandrakis, 2014. "Pareto efficiency in the dynamic one-dimensional bargaining model," Wallis Working Papers WP66, University of Rochester - Wallis Institute of Political Economy.
  11. Ortner, Juan, 0. "A theory of political gridlock," Theoretical Economics, Econometric Society.
  12. Baron, David P. & Bowen, T. Renee, 2013. "Dynamic Coalitions," Research Papers 2128, Stanford University, Graduate School of Business.
  13. Nicolas Lambert & George Georgiadis & Renee Bowen, 2016. "Collective Choice in Dynamic Public Good Provision: Real versus Formal Authority," 2016 Meeting Papers 197, Society for Economic Dynamics.
  14. Eguia, Jon X. & Shepsle, Kenneth A., 2016. "Legislative Bargaining with Endogenous Rules," CAGE Online Working Paper Series 281, Competitive Advantage in the Global Economy (CAGE).

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