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Markov Equilibrium in Models of Dynamic Endogenous Political Institutions

  • Roger Lagunoff

    (Georgetown University)

This paper examines existence of Markov equilibria in the class of dynamic political games (DPGs). DPGs are dynamic games in which political institutions are endogenously determined each period. The process of change is both recursive and instrumental: the rules for political aggregation at date t+1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. Equilibrium existence in dynamic political games requires a resolution to a “political fixed point problem” in which a current political rule (e.g., majority voting) admits a solution only if all feasible political rules in the future admit solutions in all states. If the class of political rules is dynamically consistent, then DPGs are shown to admit political fixed points. This result is used to prove two equilibrium existence theorems, one of which implies that equilibrium strategies, public and private, are smooth functions of the economic state. We discuss practical applications that require existence of smooth equilibria.

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Paper provided by EconWPA in its series Game Theory and Information with number 0501003.

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Length: 30 pages
Date of creation: 26 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpga:0501003
Note: Type of Document - pdf; pages: 30
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