a dynamic theory of collective goods programs a collective goods program such as an entitlement program distributes benefits and costs according to constituents characteristics this paper presents a dynamic theory of the legislative choice of collective goods programs based on a sequential model of proposal making and voting in a majority rule legislature where the status quo in a session is given by the program last enacted a stationary markov perfect equilibrium is characterized for a unidimensional collective goods program and yields a generalized median voter theorem comparative statics on preferences and legislative procedures and a characterization of the dynamics of such programs equilibrium programs can expand or contract over time but they ultimately converge to the median on the path to that point legislators may act strategically to address the durability problem that a future legislature can undo the actions of the present legislature by strategically positioning the status quo to limit the changes that future legislatures can make

three party competition in parliamentary democracy with proportional representation this article studies the long run dynamics of policy choices government formations and voting behavior under a parliamentary constitution and proportional representation i develop an infinite period game where in each period voters participate in a proportional representation election and three farsighted parties bargain over one dimensional policy programs and government positions the model incorporates the interaction between elections and coalition bargaining which is the essence of politics in most parliamentary systems as well as a dynamic environment of policymaking a policy once implemented remains in effect until another replaces it i find a markov perfect equilibrium in which 1 there is no majority party in any election 2 election results converge over time to a stable vote distribution 3 policy outcomes change over time but eventually stay within a set of three points 4 minimal winning coalitions and minority governments are formed with positive probability and alternate over time

do product innovation and news about the r d process produce large price changes and overreaction the case of pharmaceutical stock prices do extreme price changes of pharmaceutical stocks reflect unexpected scientific information produced during the drug rd i e food and drug administration fda approvals in 6 of these cases news of a scientific nature in

bicameralism and its consequences for the internal organization of legislatures theories of organization of legislatures have mainly focused on the u s congress explaining why committee systems emerge there but not explaining variance in organization across legislatures of different countries to analyze the effects of different constitutional features on the internal organization of legislatures we adopt a vote buying model and consider the incentives to delegate decision rights in a game among legislative chambers we show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules while a unicameral structure can encourage legislators to delegate power to a leader

majority rules and incentives a club s majority rule defines the number of members that must approve a policy proposed to replace the status quo since the majority rule thus dictates the extent to which winners must compensate losers it also determines the incentives to invest in order to become a winner of anticipated projects if the required majority is large members invest too little because of a holdup problem if it is small members invest too much in order to become a member of the majority coalition to balance these opposing forces the majority rule should increase in the project s value and the club s enforcement capacity but decrease in the heterogeneity in preferences externalities can be internalized by adjusting the rule with heterogeneity in size or initial conditions votes should be appropriately weighted or double majorities required

predictability and power in legislative bargaining the rules and procedures of legislatures often provide legislators with information bearing on the identities of upcoming proposers for a broad class of legislative bargaining games we establish that markovian equilibria necessarily deliver all economic surplus to the first proposer whenever the information structure permits the legislators to rule out some minimum number of proposers one round in advance this result holds regardless of the recognition process and even if players vary in patience and risk aversion it raises the possibility that procedures adopted in the interest of transparency may contribute to the imbalance of political power

a carrot and stick approach to agenda setting this paper models a legislature in which the same agenda setter serves for two periods showing how he can exploit a legislature completely in the first period by promising future benefits to legislators who support him in equilibrium a large majority of legislators vote for the first period proposal because they thereby maintain the chance of belonging to the minimum winning coalition in the future legislators may therefore approve policies by large majorities or even unanimously that benefit few or even none of them the results are robust but institutional arrangements such as entitlements can reduce the agenda setter s power by reducing his discretion to reward and punish legislators and rules such as sequential voting can increase a legislator s ability to resist exploitation

dynamic bargaining and stability with veto players this note examines the structure of stationary bargaining equilibria in the finite framework of anesi 2010 the main result establishes a tight connection between the set of equilibrium absorbing points and the von neumann morgestern solutions assuming that players are patient that the voting rule is oligarchical and that there is at least one veto player with positive recognition probability a set of alternatives corresponds to the absorbing points of an equilibrium if and only if it is a von neumann morgenstern solution we also apply our analysis of ergodic properties of equilibria to the persistent agenda setter environment of diermeier and fong 2012 we show that all equilibria are essentially pure and we extend their characterization of absorbing sets to allow an arbitrary voting rule and by removing the restriction to pure strategy equilibira

u s monetary policy since the 1950s and the changing content of fomc minutes content analysis is used to analyze 60 years of federal open market committee fomc minutes since there is no unique algorithm to quantify content two different algorithms are applied wordscores compares content relative to a chosen benchmark while diction is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text the resulting indicators are then incorporated into a var the content of fomc minutes is found to be significantly related to the state of the economy notably real gdp growth and changes in the fed funds rate however the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag both content indicators also suggest substantive changes in the content of fomc minutes since the 1950s in terms of the fomc s dovishness or hawkishness

stock market returns a note on temperature anomaly this study investigates whether stock market returns are related to temperature research in psychology has shown that temperature significantly affects mood and mood changes in turn cause behavioral changes evidence suggests that lower temperature can lead to aggression while higher temperature can lead to both apathy and aggression aggression could result in more risk taking while apathy could impede risk taking we therefore expect lower temperature to be related to higher stock returns and higher temperature to be related to higher or lower stock returns depending on the trade off between the two competing effects we examine many stock markets world wide and find a statistically significant negative correlation between temperature and returns across the whole range of temperature apathy dominates aggression when temperature is high the observed negative correlation is robust to alternative tests and retains its statistical significance after controlling for various known anomalies

dynamic legislative policy making abstract we prove existence of stationary markov perfect equilibria in an infinite horizon model of legislative policy making in which the policy outcome in one period determines the status quo for the next we allow for a multidimensional policy space and arbitrary smooth stage utilities and we assume preferences and the status quo are subject to arbitrarily small shocks we prove that equilibrium continuation values are differentiable and that proposal strategies are continuous almost everywhere we establish upper hemicontinuity of the equilibrium correspondence and we provide weak conditions under which each equilibrium of our model determines an aperiodic transition probability over policies we establish a convergence theorem giving conditions under which the invariant distributions generated by stationary equilibria must be close to the core in a canonical spatial model finally we extend the analysis to sequential move stochastic games and to a version of the model in which the proposer and voting rule are determined by play of a finite perfect information game

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

political selection and persistence of bad governments we study dynamic selection of governments under different political institutions with a special focus on institutional flexibility a government consists of a subset of the individuals in the society the competence level of the government in office determines collective utilities e g by determining the amount and quality of public goods and each individual derives additional utility from being part of the government e g rents from holding office we characterize the dynamic evolution of governments and determine the structure of stable governments which arise and persist in equilibrium in our model perfect democracy where current members of the government do not have veto power over changes in governments always leads to the emergence of the most competent government however any deviation from perfect democracy to any regime with incumbency veto power destroys this result there is always at least one other less competent government that is also stable and can persist forever and even the least competent government can persist forever in office we also show that there is a nonmonotonic relationship between the degree of incumbency veto power and the quality of government in contrast in the presence of stochastic shocks or changes in the environment a regime with less incumbency veto power has greater flexibility and greater probability that high competence governments will come to power this result suggests that a particular advantage of democratic regimes with a limited number of veto players may be their greater adaptability to changes rather than their performance under given conditions finally we show that royalty like dictatorships may be more successful than junta like dictatorships because in these regimes veto players are less afraid of change

bargaining in standing committees with an endogenous default committee voting has mostly been investigated from the perspective of the standard baron ferejohn model of bargaining over the division of a pie in which bargaining ends as soon as the committee reaches an agreement in standing committees however existing agreements can be amended this article studies an extension of the baron ferejohn framework to a model with an evolving default that reflects this important feature of policymaking in standing committees in each of an infinite number of periods the ongoing default can be amended to a new policy which is in turn the default for the next period the model provides a number of quite different predictions i from a positive perspective the key distinction turns on whether the quota is less than unanimity in that case patient enough players waste substantial shares of the pie each period and the size principle fails in some pure strategy markov perfect equilibria in contrast the unique markov perfect equilibrium payoffs in a unanimity committee coincide with those in the corresponding baron ferejohn framework ii if players have heterogeneous discount factors then a large class of subgame perfect equilibria including all markov perfect equilibria are inefficient

the power of the last word in legislative policy making we examine legislative policy making in institutions with two empirically relevant features agenda setting occurs in real time and the default policy evolves we demonstrate that these institutions select condorcet winners when they exist provided a sufficient number of individuals have opportunities to make proposals in policy spaces with either pork barrel or pure redistributional politics where a condorcet winner does not exist the last proposer is effectively a dictator or near dictator under relatively weak conditions

publicity of debate and the incentive to dissent evidence from the us federal reserve transparency in committee decision making may have clear benefits by making members more accountable to outside observers we consider one potential cost the possibility that publishing records of deliberations will make members more reluctant to offer dissenting opinions we construct a model that compares incentives for members with career concerns to voice dissent when deliberations occur in public or in private we test the model using an original dataset based on deliberations of the federal reserve s federal open market committee asking whether the fomc s 1993 decision to begin releasing transcripts of its meetings has altered incentives for dissent we find evidence that this is indeed the case there has been much recent discussion of the advantages of transparency in agency relationships both in and outside of government while research has attempted to model this issue theoretically there has been less progress with empirical tests a problem due no doubt in large part to the fact that it is difficult to make before and after comparisons of a shift in transparency often no data are available on an agent s actions prior to the establishment of transparency in this article we focus on one specific type of transparency publishing verbatim transcripts of committee meetings and one specific reason why this type of transparency might not be desirable the possibility that the quality of deliberation on a committee will suffer if the deliberations take place in public we develop a theoretical model that helps to identify the potential costs of this type of transparency and we then test the model empirically using an original dataset on deliberations of the federal reserve s federal open market committee fomc our dataset is unique in that it records views expressed by policymakers at fomc meetings and not just their official votes our empirical tests focus in particular on the observed effect of the institutional change that occurred in 1993 when the fomc decided to begin releasing transcripts of its meetings after a delay of five years transparency is a particularly relevant issue in monetary policy because it is commonly argued that when central banks take actions such as publishing macroeconomic forecasts revealing individual votes on monetary policy committees or releasing minutes of meetings this will lead to improved economic outcomes while simultaneously facilitating democratic accountability 1

does microtherm boost pharmaceutical companies market capitalization returns the purpose of this study was to survey the relationship between the temperature factors and market capitalization returns of pharmaceutical companies by analysing both the daily and weekly frequen

markovian equilibria in dynamic spatial legislative bargaining existence with three players abstract the paper proves by construction the existence of markovian equilibria in a dynamic spatial legislative bargaining model three players bargain over one dimensional policies in an infinite horizon in each period a sequential protocol of proposal making and voting with random proposer recognitions and a simple majority produces a policy that becomes the next period s status quo an equilibrium exists for any profile of proposer recognition probabilities any profile of players ideal policies and any discount factor in equilibrium policies converge to the median s ideal policy players moderate and propose policies close to the median s ideal in an attempt to constraint future proposers but the tendency to moderate is a strategic substitute as the opponent of a moderating player does not moderate

government turnover in parliamentary democracies in this paper we consider a dynamic model of government formation and termination in parliamentary democracies that accounts for the following phenomena 1 cabinet terminations due to replacement or early election 2 cabinet reshuf es 3 minority and surplus governments 4 the relative instability of minority governments

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

recognition without replacement in legislative bargaining abstract this paper studies infinite horizon sequential bargaining among n 3 players in which a proposer is randomly selected from the pool of potential proposers if the proposal is rejected the current and previous proposers are excluded from the pool of potential proposers and the game moves on to the next round until every player has had the same number of opportunities to be the proposer to analyze the model with a particular time dependency within each sequence of n rounds a cycle i characterize the stationary equilibrium of a stochastic game which i call cycle stationary subgame perfect cssp equilibrium the cssp equilibrium is unique in payoffs and analogous to the subgame perfect equilibrium of some forms of finite horizon bargaining even when every player is entirely patient the proposer s share in the cssp equilibrium is smaller than that predicted by the stationary equilibrium of the baron ferejohn legislative bargaining model

characterization of the von neumann morgenstern stable set in a non cooperative model of dynamic policy making with a persistent agenda setter abstract we generalize the dynamic bargaining game of diermeier and fong 2011 to arbitrary quota rules to provide a non cooperative characterization of the von neumann morgenstern stable set assuming that players are sufficiently patient and have strict preferences a pure strategy stationary equilibrium exists and in any such equilibrium a policy is a steady state if and only if it is in the stable set the result provides a non cooperative foundation of stable sets in settings with dynamic policy making and a persistent agenda setter

pharmaceutical r d spending and threats of price regulation do threats of pharmaceutical price regulation affect subsequent research and development r d spending this study uses the clinton administration s health security act hsa of 1993 as a natural experiment to study this issue we link events surrounding the hsa to pharmaceutical stock price changes and then examine the cross sectional relation between firms stock price changes and their subsequent unexpected r d spending changes re sults show that the hsa had significant negative effects on stock prices and firm level r d spending conservatively the hsa reduced r d spending by about 1 billion even though it never became law

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

committees as substitutes for commitment in this article policies are negotiated in a committee by playing a dynamic voting game with an endogenous default or status quo policy i show that joining a committee by maintaining a strong agenda setting power is a way for a decision maker to commit to a policy that in absence of committees is not time consistent the disciplinary role of the endogenous status quo and the heterogeneity of preferences within the committee are two crucial ingredients to obtain this result as a motivating example this article focuses on the time consistency of monetary policy

bureaucrats voters and public investment abstract this paper explores the provision of a durable public good in romer and rosenthal s agenda setter model it identifies a type of equilibrium called a romer rosenthal equilibrium in which in every period the bureaucrat proposes the maximum level of public investment the voter will support the paper establishes that such an equilibrium exists for a variety of public good benefit functions equilibrium public good levels converge or almost converge to a steady state these steady states can involve a unique public good level being provided each period or may exhibit a two period cycle steady state public good levels exceed the voter s optimal level more surprisingly steady state equilibrium reversion levels can exceed the voter s optimal steady state level meaning that reversion levels cannot be used to bound the optimal level reflecting the inability of the agents to commit to their future proposing and voting behavior equilibrium paths are pareto inefficient

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

durable coalitions and communication public versus private negotiations abstract we present a laboratory experiment to study the effect of communication on durable coalitions coalitions that support the same allocation from one period to the next we study a bargaining setting where the status quo policy is determined by the policy implemented in the previous period our main experimental treatment is the opportunity for subjects to negotiate with one another through unrestricted cheap talk communication before a proposal is made and comes to a vote we compare committees with no communication committees where communication is public and messages are observed by all committee members and committees where communication is private and any committee member can send a private message to any other committee member we find that the opportunity to communicate has a significant impact on outcomes and coalitions when communication is public there are more universal coalitions and fewer majoritarian coalitions with private communication there are more majoritarian coalitions and fewer universal coalitions with either type of communication coalitions occur more frequently and last longer than with no communication the volume and content of communication is correlated with coalition type these findings suggest a coordination role for communication that varies with the mode of communication

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

persistence of power repeated multilateral bargaining with endogenous agenda setting authority abstract we extend a simple repeated multilateral bargaining model to allow successful agenda setters to hold on to power as long as they maintain the support of a majority of other committee members theoretically and experimentally we compare this endogenous power environment with a standard random power environment in which agenda setters are appointed randomly each period although the theoretical analysis predicts that the two environments are outcome equivalent the experimental analysis shows substantial differences in behavior and outcomes across the games the endogenous power environment results in the formation of more stable coalitions less equitable budget allocations the persistence of power across periods and higher long run inequality than the random power environment we present evidence that the stationary equilibrium refinements traditionally used in the literature fail to predict behavior in either game

a three player dynamic majoritarian bargaining game this file contains two sets of calculations first we report the calculations of demands and continuation values of proposition 1 second the mixing probabilities of proposition 1 are shown to be well defined

incomplete social contracts there is a long normative social contract tradition that attempts to characterize ex post income inequalities that are agreeable to all behind a veil of ignorance this paper takes a similar normative approach to characterize social decision making procedures it is shown that quite generally some form of majority voting is preferred to unanimity behind a veil of ignorance whenever society faces deadweight costs in making compensating transfers deviations from unanimity or ex post pareto optimality are ex ante efficient to the extent that they economize on costly compensating transfers put another way the optimal decision rule trades off the benefits of minority protection and those from greater flexibility jel h11 g33 g34 d63 p16 p48

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

a model of farsighted voting i present a new method of interpreting voter preferences in settings where policy remains in effect until replaced by new legislation in such settings voters consider not only the utility they receive from a given policy today but also the utility they will receive from policies likely to replace that policy in the future the model can be used to characterize both long term preferences and distributions over policy outcomes in situations where policy is ongoing and voters are farsighted

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

a theory of yes men this paper illustrates an incentive for workers to conform to the opinion of their supervisors when firms use subjective performance evaluation this desire to conform arises endogenously from the firm s need to induce the worker to exert effort the author shows that firms may optimally eschew the use of incentive contracts to retain workers incentives for honesty the author illustrates that the incentive to conform implies inefficiencies even when workers are risk neutral and is likely to lead to more centralized decision making than in the absence of the desire to conform copyright 1993 by american economic association

do juntas lead to personal rule january 2009although almost half of the world s population lives under nondemocratic regimes thequestions of how policy decisions are made and how power changes hands in nondemocra cies have received relatively little attention in the political economy literature a popularview forcefully articulated by gordon tullock 1987 is that because there are no stronginstitutions ensuring consensus and regulating the election and succession of leaders non democratic regimes rapidly degenerate into personal rule where a single dictator dominatesevery aspect of decision making tullock writes empirically the junta characteristicallyshrinks to one man p 144 and continues to explain this as the result of dynamic in teractions among the members of the junta he suggests that there will typically be anaccumulation of power by one of the junta members if this upstart member succeeds hebecomes the sole ruler if he fails he is eliminated by the other members of the junta this process continues until one member is standing tullock thus concludes it can beseen that this process would tend over time to lead the junta into becoming just one manthrough the gradual exclusion of individuals who had failed in plotting or the success of anindividual who had not p 145 tullock s account like that of many others implicitly recognizes that politics in non democratic and weakly institutionalized societies should be conceptualized as one of thedynamic coalition formations there are no rules that ensure orderly transitions of powerand no checks against some members of the ruling coalition eliminating or sidelining others however formal models of dynamic coalition formation in nondemocratic societies have notbeen developed until recently in this paper we draw on our work on dynamic coalition formation daron acemoglu georgy egorov and konstantin sonin 2008a and investigate tullock s conjecture formally 1

noncooperative foundations of stable sets in voting games abstract this short note studies the noncooperative foundations of von neumann morgenstern stable sets in voting games to do so we study stationary markov equilibria smes of a noncooperative legislative bargaining game based on underlying simple games the following result emerges from such an exercise every stable set of the underlying simple game is the limit set of pure strategy stage undominated smes of the bargaining game when voters are sufficiently farsighted

on dynamic compromise abstract most legislatures require the consent of only a simple majority to pass a proposal so why don t legislative outcomes favor only a bare majority we show that compromise can be achieved if legislators are neither too impatient nor too patient and initial allocations are not too unequal the compromise is only sustainable if starting from the unequal allocations there is a possibility of spiraling towards a complete absence of compromise we find that the range of discount factors for which the equilibrium exists increases as the number of legislators increases in this sense compromise is easier in larger legislatures

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

dictators and their viziers endogenizing the loyalty competence trade off the possibility of treason by a close associate has been a nightmare of most autocrats throughout history more competent viziers are better able to discriminate among potential plotters and this makes them more risky subordinates for the ruler to avoid this rulers especially those who are weakandvulnerable sacrificethecompetenceoftheiragents hiringmediocrebutloyalsubordinates furthermore any use of incentive schemes by a personalistic dictator is limited by the fact that all punishments are conditional on the dictator s own survival we endogenize loyalty and competence in a principal agent game between a dictator and his viziers in both static and dynamic settings the dynamic model allows us to focus on the succession problem that insecure dictators face jel d72 h00 c72 c82

electoral rules and minority representation in u s cities of minority representation majorities tend to disenfranchise minorities through strategic manipulation of electoral rules with the aim of explaining changes in electoral rules adopted by u s cities particularly in the south we show why majorities tend to adopt winner take all city wide rules at large elections in response to an increase in the size of the minority when the minority they are facing is relatively small in this case for the majority it is more effective to leverage on its sheer size instead of risking conceding representation to voters from minority elected districts however as the minority becomes larger closer to a fifty fifty split the possibility of losing the whole city induces the majority to prefer minority votes to be confined in minority packed districts single member district rules serve this purpose we show empirical results consistent with these implications of the model in a novel data set covering u s cities and towns from 1930 to 2000

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

legislative bargaining with reconsideration we present a dynamic model of legislative bargaining with an endogenously evolving default policy and a persistent agenda setter policy making proceeds until the agenda setter can no longer pass a new policy to replace an approved bill we prove existence and necessary conditions of pure strategy stationary equilibria for any finite policy space any number of players and any preference profile in equilibrium the value of proposal power is limited compared to the case that disallows reconsideration as voters are induced to protect each other s benefits to maintain their future bargaining positions the agenda setter in turn would prefer to limit his ability to reconsider the lack of commitment due to the possibility of reconsideration however enhances policy efficiency

bilateral bargaining with endogenous status quo abstract we consider a non cooperative bargaining game where in each round if a proposal is rejected with a probability the allocation implemented in the previous round is implemented as a status quo and the game proceeds to the next round and with the complementary probability no allocations are implemented and the negotiations break down we show that there exists a unique stationary subgame perfect equilibrium such that in any round a proposer offers a proposal such that the responder is indifferent between accepting and rejecting it and an agreement is achieved if the probability of breakdown is close to zero the sequence of equilibrium allocations evolves from the initial status quo to an allocation near the equilibrium allocation of the rubinstein bargaining game over time the effect of the initial status quo on the equilibrium allocations vanishes over time

mandatory versus discretionary spending the status quo eect do mandatory spending programs such as medicare improve eciency we analyze a model with two parties allocating a xed budget to a public good and private transfers each period over an innite horizon we compare two institutions that dier 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 eect 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

estimating the value of proposal power this paper investigates the role of proposal power in the allocation of transportation projects across u s congressional districts in 1991 and 1998 the evidence supports the key qualitative prediction of legislative bargaining models members with proposal power those sitting on the transportation authorization committee secure more project spending for their districts than do other representatives support for the quantitative restrictions on the value of proposal power is more mixed i then empirically address several alternative models of legislative behavior including partisan models informational roles for committees models with appropriations committees and theories of committees as preference outliers

monetary policy in the media just like private companies depend crucially on their ability to reach customers policymakers must communicate with private agents to be successful and much of this communication is channeled through the media this is especially true for central banks which need to build credibility among the general public this paper analyses how favorably the print media report about the european central bank s ecb monetary policy decisions favorableness is inter alia influenced by the amount of information communicated by the ecb there are however also indications of a critical monitoring role of the media which reports more negatively when inflation exceeds the inflation target

transparency and deliberation within the fomc a computational linguistics approach how does transparency a key feature of central bank design aect the deliberation of monetary policymakers we exploit a natural experiment in the federal open market committee in 1993 together with computational linguistic models particularly latent dirichlet allocation to measure the eect of increased transparency on debate commentators have hypothesized both a benecial discipline eect

dynamics and stability of constitutions coalitions and clubs a central feature of dynamic collective decision making is that the rules that govern the procedures for future decision making and the distribution of political power across players are determined by current decisions for example current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations we develop a general framework for the analysis of this class of dynamic problems under relatively natural acyclicity assumptions we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness we show how this framework can be applied in political economy coalition formation and the analysis of the dynamics of clubs the explicit characterization we provide highlights two intuitive features of dynamic collective decision making 1 a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society 2 efficiency enhancing changes are often resisted because of further social changes that they will engender

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

dynamic collective choice with endogenous status quo we analyze a bargaining situation in which preferences evolve over time and the previous agreement becomes the next status quo the endogeneity of the status quo exacerbates the players conflict of interest players disagree more often than under exogenous status quo this leads to inefficiencies and status quo inertia under certain conditions the negotiations can come to a complete gridlock players never reach an agreement gridlock can occur between players with arbitrarily similar preferences provided they are sufficiently patient in legislative settings our model predicts polarization and explains why legislators may fail to react promptly to economic shocks

bargaining in legislatures over particularistic and collective goods we develop a bargaining model in which a legislature divides a budget among particularistic and collective goods by incorporating both private and public goods in a unified model we uncover nonmonotonic relationships between legislative preferences for collective spending and the amount of the budget actually allocated to collective goods put simply policy proposers can exploit coalition partners strong preferences for public goods to actually provide fewer public goods in equilibrium while directing more private goods to themselves these results explain why policy reforms to limit special interest spending often fail this unified model also sheds new light on when legislatures prefer open or closed amendment rules and when coalitions take different sizes and shapes

spending biased legislators discipline through disagreement this paper studies politicians who have a present bias for spending they want to increase current spending and procrastinate spending cuts we argue that legislators bias is more severe in economies with low institutional quality we show that disagreement in legislatures leads to policy persistence and that this attenuates the temptation to overspend depending on the environment legislators decisions to be fiscally responsible may either complement or substitute other legislator s decisions in economies with weak institutions politicians actions are strategic complements thus institutional changes that induce fiscal responsibility are desirable they generate a positive responsibility multiplier and reduce inefficient spending however in economies with better institutions the same institutional change would induce some legislators to free ride on others responsibility and may lead to more inefficient spending