Dynamic Collective Choice with Endogenous Status Quo

59 Pages Posted: 9 Jan 2013 Last revised: 5 Feb 2015

Date Written: January 19, 2015

Abstract

This paper analyzes an ongoing bargaining situation in which preferences evolve over time and the previous agreement becomes the next status quo, determining the payoffs until a new agreement is reached. We show that the endogeneity of the status quo induces perverse incentives that exacerbate the players' conflict of interest: Players disagree more often than they would if the status quo was exogenous. This leads to inefficiencies and status quo inertia. Under certain conditions, the endogenous status quo leads the negotiations to a complete gridlock in which players never reach an agreement. Such gridlock can occur between players with arbitrarily similar preferences, provided they are sufficiently patient. When applied to the legislative setting, our model predicts polarized behavior, and explains why oftentimes legislators fail to react in a timely fashion to economic shocks.

Keywords: dynamic bargaining, dynamic voting, legislative bargaining, endogenous status quo, partisanship, polarization, policy inertia, sunset provision

JEL Classification: C73, D72, D78

Suggested Citation

Dziuda, Wioletta and Loeper, Antoine, Dynamic Collective Choice with Endogenous Status Quo (January 19, 2015). Available at SSRN: https://ssrn.com/abstract=2197728 or http://dx.doi.org/10.2139/ssrn.2197728

Wioletta Dziuda

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Antoine Loeper (Contact Author)

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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