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Legislative Bargaining and the Dynamics of Public Investment

Published online by Cambridge University Press:  22 May 2012

MARCO BATTAGLINI ,
SALVATORE NUNNARI  and
THOMAS R. PALFREY
MARCO BATTAGLINI*
Affiliation:
Princeton University
SALVATORE NUNNARI*
Affiliation:
California Institute of Technology
THOMAS R. PALFREY*
Affiliation:
California Institute of Technology
*
Marco Battaglini is Professor of Economics, Princeton University, Fisher Hall, Princeton NJ 08544 (mbattagl@princeton.edu).
Salvatore Nunnari is a PhD Candidate in Social Sciences, California Institute of Technology, MC-228-77, 1200 E. California Boulevard, Pasadena, CA 91125 (snunnari@hss.caltech.edu).
Thomas R. Palfrey is Flintridge Foundation Professor of Economics and Political Science, California Institute of Technology, MC-228-77, 1200 E. California Boulevard, Pasadena, CA 91125 (trp@hss.caltech.edu).
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Abstract

We present a legislative bargaining model of the provision of a durable public good over an infinite horizon. In each period, there is a societal endowment that can either be invested in the public good or consumed. We characterize the optimal public policy, defined by the time path of investment and consumption. In a legislature representatives of each of n districts bargain over the current period's endowment for investment in the public good and transfers to each district. We analyze the Markov perfect equilibrium under different voting q-rules where q is the number of yes votes required for passage. We show that the efficiency of the public policy is increasing in q because higher q leads to higher investment in the public good and less pork. We examine the theoretical equilibrium predictions by conducting a laboratory experiment with five-person committees that compares three alternative voting rules: unanimity (q = 5), majority (q = 3), and dictatorship (q = 1).

Type
Research Article
Information
American Political Science Review , Volume 106 , Issue 2 , May 2012 , pp. 407 - 429
Copyright
Copyright © American Political Science Association 2012

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