DP12966 Open Rule Legislative Bargaining

Author(s): Hans Gersbach, Britz Volker
Publication Date: May 2018
Date Revised: August 2019
Keyword(s): Bargaining, Baron and Ferejohn, Legislatures, Open Rules, Stationary Equilibrium
JEL(s): C72, C78, D72
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12966

We consider non-cooperative bargaining on the division of a surplus under a simple majority rule. Bargaining takes place according to an "open rule" as originally suggested by Baron and Ferejohn (1989): Under an open rule, proposals can be amended before they are voted on. We first point out some gaps in Baron and Ferejohn's work, and provide a fresh analysis of open rule bargaining. We carefully distinguish between players endorsing a proposal and those voting in favor of a proposal. We devise a method to construct equilibrium candidates and to test whether these candidates are indeed equilibria. When players are sufficiently patient, we explicitly compute equilibrium outcomes. Compared to the canonical closed rule bargaining game, the equilibrium outcomes of open rule bargaining involve delays, but lead to more egalitarian surplus allocations. However, our results suggest that equilibrium delays tend to be longer, and surplus allocations tend to be less egalitarian than predicted by Baron and Ferejohn.