Policy Dynamics and Inefficiency in a Parliamentary Democracy with Proportional Representation
David P. Baron
Stanford University - Graduate School of Business
Northwestern University - Kellogg School of Management
University of Rochester - Department of Economics
Stanford University Graduate School of Business Research Paper No. 1960
This paper presents a dynamic model of election, government formation, and legislation in a parliamentary democracy with proportional representation in which the policy chosen in one period becomes the status quo for the next period. The electorate votes strategically by taking into account the likely governments that parties would form and the policies they would choose as a function of the status quo. The status quo also affects the bargaining power of the parties during government formation and their respective policy choices. A formateur party thus has incentives to strategically position the current policy to gain an advantage in both the next election and the subsequent government formation. These incentives can give rise to centrifugal forces that result in policies that are outside the Pareto set of the parties.
Number of Pages in PDF File: 51
Keywords: political economy
JEL Classification: D70, H50
Date posted: March 26, 2007
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