DP12938 Dynamic Legislative Bargaining with Veto Power: Theory and Experiments

Author(s): Salvatore Nunnari
Publication Date: May 2018
Date Revised: June 2020
Keyword(s): Dynamic Legislative Bargaining, Endogenous Status Quo, Laboratory experiments, Markov perfect equilibrium, Veto Power
JEL(s): C72, C73, C78, D71, D72, D78
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12938

In many domains, committees bargain over a sequence of policies and a policy remains in effect until a new agreement is reached. In this paper, I argue that, in order to assess the consequences of veto power, it is important to take into account this dynamic aspect. I analyze an infinitely repeated divide-the-dollar game with an endogenous status quo policy. I show that, irrespective of legislators' patience and the initial division of resources, policy eventually gets arbitrarily close to full appropriation by the veto player; that increasing legislators' patience or decreasing the veto player's ability to set the agenda makes convergence to this outcome slower; and that the veto player supports reforms that decrease his allocation. These results stand in sharp contrast to the properties of models where committees bargain over a single policy. The main predictions of the theory find support in controlled laboratory experiments.