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Legislative bargaining and the dynamics of public investment

  • Battaglini, Marco
  • Nunnari, Salvatore
  • Palfrey, Thomas

We present a legislative bargaining model of the provision of a durable public good over an infinite horizion. In each period, there is a societal endowment which can either be invested in the public good or consumed. We characterize the optimal public policy, defined by the time path of investment and consumption. In each period, a legislature with presentatives of each of n districts bargain over the current period's endowment for investment in the public good and transfers to each district. We analyze the Markov perfect equilibrium under different voting q-rules where q is the number of yes votes required for passage. We show that the efficiency of the public policy is increasing in q because higher q leads to higher investment in the public good and less pork. We examine the theoretical equilibrium predictions by conducting a laboratory experiment with fiveperson committees that compares three alternative voting rules: unanimity (q=5); majority (q=3); and dictatorship (q=1).

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Behavior with number SP II 2011-205.

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Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:wzbmbh:spii2011205
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  9. Richard T. Boylan & Richard D. McKelvey & John Ledyard, 1996. "Political competition in a model of economic growth: Some theoretical results (*)," Economic Theory, Springer, vol. 7(2), pages 191-205.
  10. Pedro Dal Bo & Guillaume R. Frochette, 2011. "The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence," American Economic Review, American Economic Association, vol. 101(1), pages 411-29, February.
  11. Barseghyan, Levon & Battaglini, Marco & Coate, Stephen, 2013. "Fiscal policy over the real business cycle: A positive theory," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2223-2265.
  12. Guillaume R. Frechette & John H. Kagel & Steven Lehrer, 2000. "Bargaining in Legislatures: An Experimental Investigation of Open versus Closed Amendment Rules," Econometric Society World Congress 2000 Contributed Papers 1515, Econometric Society.
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