"Political
Institutions and the Dynamics of Public Investments"
with
Salvatore Nunnari and Thomas Palfrey
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 which 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 each period, a legislature
with 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).
Keywords: Dynamic political economy, voting, public goods, bargaining, experiments.
JEL Classification: D71, D72, C78, C92, H41, H54