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The industrial organization of Congress (Weingast-Marshall) The organization of Congress meets remarkably well the electoral needs of its members.(..) If a group of planners sat down and tried to design a pair of American national assemblies with the goal of serving members’ electoral needs year in and year out they would be hard pressed to improve on what exists. (David Mayhew )

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The industrial organization of Congress A huge variety of interests are represented in the legislature and almost none is represented by a majority The diversity of interests creates gains from exchange If public policies reflect a series of bargains among various interests, how are these bargains maintained over time ?

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Transaction costs 2 problems: Imperfect observability Incompleteness of contracts (moral hazard problem)

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Three assumptions

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Vote trading (or logrolling) models, Tullock 1981

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Not only porkbarrel politics Pork Barrel programs (distributive policies): benefit flows are contemporaneous to different legislators; Usual legislative instrument to prevent future reneging: omnibus bill However many programs imply: 1.Noncontemporaneous benefit flows 2.Nonsimultaneous exchange

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Repeat play and reputation: useful but not always sufficient

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An idealized legislative committee system Gatekeeping power

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An idealized legislative committee system

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Consequences of the idealized legislative committee system on trade enforcement One group of legislators seeks dams and bridges; another wants regulatory benefits. The 2 groups now are in two different committees. The control over the agenda within its jurisdiction implies that a committee has a veto power over the proposal of others Ex post reneging is not possible anymore

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Consequences of the idealized legislative committee system on the type of policies and the identity of the “gainers”

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Consequences of the idealized legislative committee system on the type of coalitions Successful coalitions must include the members of the relevant committee Policy and coalitions are more durable: small electoral shifts do not matter

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Summary

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Why Parties? (Aldrich) There is a set of incentives for ambitious politicians to “turn to parties”. They can solve efficiently difficult problems 1.Collective action (social choice)problems in policy making 2.Collective action (public goods) problems in elections

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Why Parties? (Aldrich) Collective Action problems (social choice type) Bill (voted against the Status Quo) LegislatorXYZ A43-9 B3 4 C 43 Independent Voting Outcome All bills pass Payoff (-2 A, -2 B, -2 C ) Pareto optimal result : Defeat all bills Payoff (0, 0, 0) Party of A and B: Outcome Pass only X Payoff (4,3,-9)

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Why Parties? (Aldrich) Collective Action problems (public good type) Player’s 2 Choice Player’s 1 Choice CooperationDefection Cooperation(3,3)(1,4) Defection(4,1)(2,2) Nash Equilibrium, Pareto inferior

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Collective Action problems with “Universalism” (pork barrel projects) Bill(voted against the Status Quo) LegislatorXYZ A3 B 3 C 3 Independent Voting Outcome All bills fail Payoff (0 A, 0 B, 0 C ) Pareto optimal result : Pass all bills Payoff (1, 1, 1) Universalism norm : Pass all bills Payoff (1, 1, 1) Expected utility of minimal voting coalition (Weingast 1979) Payoff (2/3,2/3,2/3) Each mvc member receives 2, Each non mvc member receives -2 ; probability to be mvc member= 2/3; Exp.utility= (2/3)*(2) + (1/3)*(-2)=2/3 Party of A and B: Outcome Pass bills X and Y Payoff (2,2,-2)

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Convenience to form a party even without collective action problems (pork barrel projects) Bill(voted against the Status Quo) LegislatorXYZ A2 B 2 C 2 Independent Voting Outcome All bills fail Payoff (0 A, 0 B, 0 C ) Pareto optimal result : Pass all bills Payoff (0 A, 0 B, 0 C ) Universalism norm : Pass all bills Payoff (0 A, 0 B, 0 C ) Expected utility of minimal voting coalition (Weingast 1979) Payoff (0,0,0) Each mvc member receives 1, Each non mvc member receives -2 ; probability to be mvc member= 2/3; Exp.utility= (2/3)*(1) + (1/3)*(-2)=0 Party of A and B: Outcome Pass bills X and Y Payoff (1,1,-2)

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n legislators; m=minimal majority size b= benefit to pass a bill for the winner C=general cost of the bill c=C/n individual cost (for the legislator, namely the costituency) Any legislator in choosing independently will vote for any bill for which b-c>0 However in order to approve his/her bill a legislator need to find a majority; in other terms he/she has to pay the cost of other bills….. A series of pork barrel bills will pass if b – mc >0 for all members of a minimum winning coalition; in other terms if the benefit to approve his/her project overcomes the cost to approve the bills of the other coalition members. Pork Barrel, Universalism and Party Formation

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However the benefit b can really take place only if the MP is member of the winning coalition. p= a priori probability to be member of a minimum winning coalition If all minimum winning coalitions are equally likely then each MPs expects to receive p(b- mc)+(1-p)(-mc)=pb-mc The critical problem here is the uncertainty. Binding unanimous coalition that cancels the uncertainty (universalism) can be a better institutional solution (condition: b-nc>pb-mc) Forming a party is even more convenient. (condition: b-mc>pb-mc always true)

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Social Choice problems (one bill against another) Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYZX Utility Value43-9 Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? Sequential agenda:sincere voting First stepFinal stepPayoff to (A,B,C) (X,Y)=X(X,Z)=Z(-9,4,3) (X,Z)=Z(Z,Y)=Y(3,-9,4) (Y,Z)=Y(Y,X)=X(4,3,-9)

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Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYZX Utility Value43-9 Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? Sequential agenda: sophisticated voting First stepFinal stepPayoff to (A,B,C) (X,Y)=Y(Y,Z)=Y(3,-9,4) (X,Z)=X(X,Y)=X(4,3,-9) (Y,Z)=Z(Z,X)=Z(-9,4,3) Social Choice problems (one bill against another)

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Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYZX Utility Value43-9 Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? Equiprobable order of voting Expected outcome (-2/3, -2/3, -2/3) Temporary coalitions: cycle. Party of A and B Outcome Pass X. Payoff (4,3,-9) Social Choice problems (one bill against another)

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Absence of a Social Choice problem Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYXZ Utility Value43-9 Round-robin tournament: X beats Y (A,B),Y beats Z (A,C); X beats Z (A,C);Outcome X Sequential agenda: sincere voting First stepFinal stepPayoff to (A,B,C) (X,Y)=X(X,Z)=X(4,3,3) (X,Z)=X(Z,Y)=X(4,3,3) (Y,Z)=Y(Y,X)=X(4,3,3)

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Absence of a Social Choice problem Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYXZ Utility Value43-9 Round-robin tournament: X beats Y (A,B),Y beats Z (A,C); X beats Z (A,C);Outcome X Sequential agenda: sophisticated voting First stepFinal stepPayoff to (A,B,C) (X,Y)=X(X,Z)=X(4,3,3) (X,Z)=X(Z,Y)=X(4,3,3) (Y,Z)=Y(Y,X)=X(4,3,3)

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Social Choice problems (only one bill to approve) Round-robin tournament: X beats Y (A,B),Y beats Z (A,C); X beats Z (A,C);Outcome X Equiprobable order of voting All pass X. Payoff (4,3,3) Temporary coalitions: (A,B),(B,C), (A,C) pass X. Payoff (4,3,3) Party of A and B Outcome Pass X. Payoff (4,3,3) No incentive for party formation!! Preference ranking on bills LegislatorFirstSecondThird AXYZ BZXY CYXZ Utility Value43-9

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Collective action and electoral mobilization Two problems: 1.The calculus of voting : R=PB+D-C; P=probability that the vote affects the outcome; B=the differential benefit from the election of the preferred candidate; D= the duty as citizen. P is usually very small. 2.Becoming informed

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Incentive for Party Affiliation for candidates Affiliation provides the candidate of a brand name, useful to convey in a cheap way information Affiliation provides economies of scale for the party campaign efforts.

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Political Equilibrium

Political Equilibrium

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