Vincent Anesi and Daniel J. Seidmann
Most formal political analysts of committee decision-making, until recently, have used models in which interaction among committee members ends once a proposal is passed. However, many committees (such as legislatures) are dynamic in two senses: (i) their members reach a sequence of policy agreements (so the committee is standing), and (ii) policies continue in effect unless the last agreement is amended (so the default is endogenous). Congressional legislation on social policy and entitlements constitutes a typical example: the previously agreed law remains in place until Congress decides to amend it.
This Nottingham School of Economics working paper, in the Review of Economic Studies, explores these dynamic features of committee decision-making in the standard context of bargaining over the division of a dollar. Analysis of this model with an endogenous default raises various interesting questions, such as: (1) When do stationary equilibria exist and, when they do, are their outcomes unique? (2) Must each dollar be divided between a minimal winning majority (as predicted by the size principle)? (3) Is each dollar fully divided? (4) Are equilibria Pareto efficient? (5) How does the endogeneity of the evolving default affect equilibrium outcomes? And (6) How do the answers to these questions depend on voting rules?
Vincent Anesi and Daniel Seidmann characterize a large class of stationary equilibria, thus showing equilibrium multiplicity (rather than existence) constitutes a serious challenge for the analysis of dynamic bargaining outcomes. In comparison to the standard framework with fixed default, their results reveal a number of quite different predictions. 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 dollar each period and the size principle fails in some stationary equilibria. By contrast, the unique stationary equilibrium payoff in a unanimity committee coincides with those in the corresponding fixed-default framework. If players have heterogeneous discount factors then a large class of subgame perfect equilibria (including all stationary equilibria) are inefficient.
Review of Economic Studies, “Bargaining in Standing Committees with an Endogenous Default” by Vincent Anesi and Daniel J. Seidmann.
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Posted on Wednesday 22nd July 2015