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Published August 2, 2017 | Submitted
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Legislative bargaining and the dynamics of public investment


We present a legislative bargaining model of the provision of a durable public good over an infinite horizion. 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).

Additional Information

We thank Abhijit Banerjee, Lydia Mechtenberg, Craig Volden, and Alan Wiseman for detailed comments. We are also grateful for comments from seminar audiences at Bocconi University, University of Chicago, University of Melbourne, ITAM, University of Arizona, University of California Riverside, UCLA, Carnegie Mellon University, the 2009 International CAS/NES Workshop on Rationality, Behaviour and Experiments in Moscow, the 2009 Wallis Conference in Rochester, the Conference on Theory and Field Experiments in Political Economy at Harvard University, the Australasian Public Choice Conference 2009 in Melbourne, the 2010 Winter Meeting of the Econometric Society in Atlanta, the 2010 CIRPEE Workshop on Political Economy in Quebec City, and the 2011 MPSA Conference in Chicago. We thank Dustin Beckett and Juan Ortner for research assistance.

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