DP10154 Channeling the Say in Political Decision Bodies

Author(s): Hans Gersbach, Stephan Imhof, Oriol Tejada
Publication Date: September 2014
Keyword(s): constitutional design, majority rule, public project provision, subsidies
JEL(s): D72, H40
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10154

We examine optimal procedures for public project provision, financing, and redistribution in democracy. We consider a large and heterogeneous decision body and show that first-best outcomes are obtained by a procedure that involves two proposal-making rounds, the right of the minority to move first, and a ban on subsidies for the agenda-setters. We explore the robustness of the result and consider applications of our rules. For instance, the result rationalizes those rules of democracies that grant minorities in the electorate or in parliament the right to initiate collective decisions on new project proposals. We further show that the above procedure constitutes the unique minimal form of political competition that ensures first-best outcomes.