Dynamic Legislative Bargaining with Endogenous Agenda Setters

Description

Most economic policies are made through the political process. So how the legislativeinstitutions shape policymakers’ incentives and their policy choices has been a centralresearch question in economic theory. In this proposed study I propose a three-playerdynamic model in whichthe policy choice in each period is made through thesequence of proposal making and voting,the policy made in one period becomes thestatus quo in the next period, andthe agenda setter in each period is endogenouslydetermined through an all-pay contest, in which all players simultaneously expend costlyefforts to bid for proposal power and the highest bidder becomes the agenda setter inthat period. Analysis of the proposed model would point to overlooked incentives of the policymakersand imply rich policy dynamics. First, players with moderate ideological preferenceswould not compete actively in the political process for proposal power. As a consequencewe should expect key positions in the legislature and the government to be occupied bypoliticians that represent special interests or have radical ideological preferences.Second, the extreme players however would make more moderate policy choices thannecessary, due to the incentive to alleviate future competition costs and the incentive toconstrain the extreme players on the other side in case they grab proposal power in thefuture. Third, whether the policy moves to the median policy in the long run depends onhow the players value their future payoffs. With sufficiently patient players, even ifthose with moderate ideological preferences are never recognized as agenda setter, theextreme players would make substantial compromise in policy proposals so that thepolicy still moves gradually towards the median policy. However, with sufficientlyimpatient players the long-run policy would be bounded away from the median policy.Therefore the proposed research would offer a dynamic game-theoretic foundation ofthe median voter theorem in some cases but refute it in the other cases.