Politics through the Lens of Economics

Lecture 8: Legislative Bargaining

Masayuki Kudamatsu

22 November, 2017

Discussion time

Can the Probabilistic Voting Model explain

why lobbying activities are not banned in the United States?

Liborio Prosperi. The Lobby of the House of Commons. 1886. National Portrait Gallery, London. en.wikipedia.org/wiki/Liborio_Prosperi

NRA (National Rifle Association) in U.S.

Background information for discussion

Perhaps the most famous example of a lobbying group

Money involved

in U.S. in 2012

Campaign contributions

Interest

Groups

Politicians

Lobbyists

Hire

Persuade

$750,000,000

$3,500,000,000

Background information for discussion (cont.)

Discussion time

Can the Probabilistic Voting Model (assumptions / predictions) explain why lobbying activities are not banned in the United States?

Aim to come up with a wrong answer

Motivation #1: Legislative policy-making

The models we've seen so far

The elected politician

chooses policies

single-handedly

Elected legislators

pass the bill

by majority voting

Reality

Motivation #2: "Agenda setter"

Legislature, however, doesn't just vote on a bill

Somebody has to propose a bill

Only a subset of legislators propose a bill in reality

Cabinet ministers in parliamentary systems (UK, etc.)

Legislative committees in presidential systems (US etc.)

Agriculture Appropriations Armed Services Budget

Education and the Workforce Energy and Commerce Ethics

Financial Services Foreign Affairs Homeland Security

House Administration Judiciary Natural Resources

Oversight and Government Reform Rules

Science, Space, and Technology Small Business

Transportation and Infrastructure Veterans' Affairs Ways and Means

Committees in U.S. Lower House

 

We will see this committee in action later

Today we will see...

Then why do other legislators delegate the proposal power?

How powerful the agenda setter is

Answer: Otherwise the majority voting rarely reaches an agreement

Today's Road Map

Bargaining over one-dimensional policy

Evidence for agenda-setter's power

Bargaining over multi-dimensional policy

Legislative Bargaining Model

Today's Road Map

Bargaining over one-dimensional policy

Evidence for agenda-setter's power

Bargaining over multi-dimensional policy

Legislative Bargaining Model

Players

Agenda setter

Consider 3-member legislature

Basic insight is the same for many-member legislature

Legislator 2

Legislator 3

Timing of Events

Agenda setter proposes a policy

Otherwise, the default policy is implemented

Other legislators decide whether to vote in favour or against

If the majority is in favour, the proposed policy is implemented

1

2

3

Default policy

e.g. Policy in the previous period, Government shutdown

Implemented if the proposed policy is rejected by majority voting

Government shutdown in U.S.

October 1st-16th, 2013

Timing of Events

Agenda setter proposes a policy

Otherwise, the default policy is implemented

Other legislators decide whether to vote in favour or against

If the majority is in favour, the proposed policy is implemented

1

2

3

Now we apply this model to one dimensional policy

Today's Road Map

Bargaining over one-dimensional policy

Evidence for agenda-setter's power

Bargaining over multi-dimensional policy

Legislative Bargaining Model

One-dimensional policy

Median

Leftist

Rightist

The three legislators' ideal policies

One-dimensional policy

Ideal point

Desirability decreases with distance to the ideal point 

These two policies are equally desirable

Distance from the ideal point is the same

Default policy

Median

Leftist

Rightist

Default policy can be anywhere

Default policy

Median

Leftist

Rightist

Default policy can be anywhere

Default policy

Median

Leftist

Rightist

Default policy can be anywhere

Default policy

Median

Leftist

Rightist

Default policy can be anywhere

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

Suppose the default policy is to the left of the median

Case 1: Agenda setter is the median legislator

Leftist

Rightist

Leftist votes in favour of any proposal to the left of default

Case 1: Agenda setter is the median legislator

Leftist

Rightist

Rightist votes in favour of proposals to the right of default

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

Agenda setter's ideal is to the right of default

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

Agenda setter proposes his own ideal

Proposal

Against

In favour

Agenda setter's ideal policy is chosen by majority voting

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

Proposal

Against

In favour

In this case, the rightist prefers the default the least

Agenda setter chooses the rightist as a coalition partner

Coalition

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

If the default policy is to the right of the median

By a symmetric argument, the same result holds. Namely...

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

If the default policy is to the right of the median

Proposal

In favour

Against

Agenda setter's ideal policy is chosen by majority voting

Case 1: Agenda setter is the median legislator

Agendasetter

Leftist

Rightist

If the default policy is to the right of the median

Proposal

In favour

Against

Leftist, preferring the default the least, is chosen

as a coalition partner

Coalition

Case 1: Agenda setter is the median legislator

So far, it's the same prediction

as in the median voter theorem

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Suppose the default policy is

to the right of the agenda setter's ideal

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Leftist prefers policies to the left of default

Case 2: Agenda setter is the rightist legislator

Agendasetter

Median

Median prefers policies to the left of default

(up to the point symmetric around the median)

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Both prefers the agenda setter's ideal to default

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Agenda setter proposes his own ideal

The proposal passes with unanimity

In favour

In favour

Proposal

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Suppose the default policy is to the right of the median

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Leftist votes in favour of any proposal to the left of default

Case 2: Agenda setter is the rightist legislator

Agendasetter

Median

Median votes in favour of proposals

between default and the one symmetric to median

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

For agenda setter, the rightmost policy that the median legislator approves is the best feasible policy

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Agenda setter proposes the default policy

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Agenda setter proposes the default policy

The proposal passes with unanimity

In favour

In favour

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Suppose the default policy is to the left of the median

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Leftist votes in favour of any proposal to the left of default

Case 2: Agenda setter is the rightist legislator

Agendasetter

Median

Median votes in favour of proposals

between default and the one symmetric to median

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

For agenda setter, the rightmost policy that the median legislator approves is the best feasible policy

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Proposal

Median legislator votes in favour to pass the proposal

For agenda setter, the rightmost policy that the median legislator approves is the best feasible policy

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Proposal

Median legislator is chosen as a coalition partner

because it is cheaper for the agenda setter

to provide the same benefit as the default policy

Coalition

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Suppose the default policy is to the left of the leftist's ideal

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Now the median's preferable policies include

Agenda setter's ideal to default

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Agenda setter proposes his own ideal

Proposal

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Proposal is approved by Median

Proposal

In favour

Against

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Proposal

In favour

Against

Coalition

Case 2: Agenda setter is the rightist legislator

Agendasetter

Leftist

Median

Agenda setter can pass the proposal between his own ideal and median's ideal

This is the agenda setting power

Case 3: Agenda setter is the leftist legislator

Rightist

Agenda setter

Median

What's the range of policies to be implemented in this case?

Case 3: Agenda setter is the leftist legislator

Rightist

Agenda setter

Median

By the symmetric argument to Case 2, 

Agenda setter can pass the proposal

between her ideal and median's

This is the agenda setting power

Why giving up the agenda-setting power, then?

Its value is clear if the policy is multidimensional

Today's Road Map

Bargaining over one-dimensional policy

Evidence for agenda-setter's power

Bargaining over multi-dimensional policy

Legislative Bargaining Model

Voting Cycles

If policy is multi-dimensional...

For every proposal, there is another preferred by the majority

No policy will be approved by majority voting

Division-of-a-pie problem

0

100

100

Legislator 2's

share

Legislator 1's

share

Division-of-a-pie problem

0

100

100

Legislator 2's

share

Legislator 1's

share

Suppose the default policy is (50,30,20)

Division-of-a-pie problem

0

100

100

Legislator 2's

share

Legislator 1's

share

Policies that Legislator 1 prefers to default

Division-of-a-pie problem

0

100

100

Legislator 2's

share

Legislator 1's

share

Policies that Legislator 2 prefers to default

Division-of-a-pie problem

0

100

100

Legislator 2's

share

Legislator 1's

share

Policies that

Legislator 3

prefers to default

80

80

When Legislator 1 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

Legislator 1 will pick the rightmost policy in this region that is approved by at least one legislator

0

100

100

Legislator 2's

share

Legislator 1's

share

Best for legislator 1 among those that 2 will agree

When Legislator 1 is the agenda-setter

70

30

0

100

100

Legislator 2's

share

Legislator 1's

share

80

80

Best for legislator 1 among those that 3 will agree

When Legislator 1 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

Which will legislator 1 propose?

When Legislator 1 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

Legislator 1 proposes (80, 0, 20)

 

Legislator 3 agrees

When Legislator 1 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

When Legislator 2 is the agenda-setter

Legislator 2 will pick the highest policy in this region that is approved by at least one legislator

When Legislator 2 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

Best for legislator 2 among those that 1 will agree

50

0

100

100

Legislator 2's

share

Legislator 1's

share

80

80

Best for legislator 2 among those that 3 will agree

When Legislator 2 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

80

Which will legislator 2 propose?

When Legislator 2 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

80

When Legislator 2 is the agenda-setter

Legislator 2 proposes (0, 80, 20)

 

Legislator 3 agrees

0

100

100

Legislator 2's

share

Legislator 1's

share

80

80

When Legislator 3 is the agenda-setter

Legislator 3 will pick the most bottom-left policy in this region that is approved by at least one legislator

When Legislator 3 is the agenda-setter

0

100

100

Legislator 2's

share

Legislator 1's

share

Best for legislator 3

among those that

1 will agree

0

100

100

Legislator 2's

share

Legislator 1's

share

When Legislator 3 is the agenda-setter

Best for legislator 3

among those that

2 will agree

0

100

100

Legislator 2's

share

Legislator 1's

share

When Legislator 3 is the agenda-setter

Which will legislator 3 propose?

0

100

100

Legislator 2's

share

Legislator 1's

share

When Legislator 3 is the agenda-setter

Legislator 3 proposes (0, 30, 70)

 

Legislator 2 agrees

Summary

Agenda-setter 1 2 3
1
2
3
Default 50 30 20

Summary

Agenda-setter 1 2 3
1 80 0 20
2
3
Default 50 30 20

Summary

Agenda-setter 1 2 3
1
2 0 80 20
3
Default 50 30 20

Summary

Agenda-setter 1 2 3
1
2
3 0 30 70
Default 50 30 20

Summary

Agenda-setter 1 2 3
1 80 0 20
2 0 80 20
3 0 30 70
Default 50 30 20

Agenda-setter gets a lot

Summary

Agenda-setter 1 2 3
1 80 0 20
2 0 80 20
3 0 30 70
Default 50 30 20

Worst default outcome

Be part of coalition

Why delegating the agenda-setting power?

Agenda-setter 1 2 3
1 80 0 20
2 0 80 20
3 0 30 70
Default 50 30 20

To reach an agreement to implement some policy

For a majority, it's better than being stuck to the default policy

Today's Road Map

Bargaining over one-dimensional policy

Evidence for agenda-setter's power

Bargaining over multi-dimensional policy

Legislative Bargaining Model

Highway Trust Fund in U.S.

Drivers

Federal govt

Gasoline tax

State govts

Fiscal transfer

Highways

Construct & Maintain

Congress chooses

which highways to be financed

($5b in 1991, $8b in 1998)

Testing ground:

Legislative process for Highway Trust Fund

House of Representatives (435 members)

House Committee on

Transportation and Infrastructure

(55 or 72 members)

Fund allocation bill

Propose

Vote

Measurement of fund allocation

Match project locations with representatives' electoral districts

Theoretical prediction #1

Majority voting

Some non-committee members receive zero

Share of congressional districts receiving zero

Committee members The others
1991 0% 72%
1998 0% 21%

Source: Table 1 of Knight (2005)

Committee members set the agenda

Theoretical prediction #2

Their district receives more funds

Average Allocated Spendings

Committee members The others
1991 $54.8m $6.1m
1998 $38.5m $13.8m

Source: Table 1 of Knight (2005)

Caveat: is it really agenda-setting power?

Committee members may be from districts in need of infrastructure

Summary

Legislative bargaining outcomes favour the agenda setter

One justification for delegating agenda setting power

= Reach an agreement on multi-dimensional policy issues

Next lecture

Presidential vs. Parliamentary Systems

This lecture is based on the following academic articles and books.

Knight, Brian. 2005. “Estimating the Value of Proposal Power.” American Economic Review, 95(5): 1639–52.

Persson, Torsten, and Guido Tabellini. 2000. Political Economics. MIT Press. pp. 105-106.

The legislative bargaining model was originally proposed by:

Baron, David P., and John Ferejohn. 1989. “Bargaining in Legislatures.” American Political Science Review, 83(4): 1181–1206.

Gehlbach, Scott. 2013. Formal Models of Domestic Politics. Cambridge University Press. pp. 123-124.

Politics through the Lens of Economics (2017): Lecture 8 Legislative Bargaining

By Masayuki Kudamatsu

Politics through the Lens of Economics (2017): Lecture 8 Legislative Bargaining

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