A Theory of Political Compromise

CEPR Discussion Paper Series No. 1935

Posted: 29 Sep 1998

See all articles by Avinash Dixit

Avinash Dixit

Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Gene M. Grossman

Princeton University - Princeton School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Faruk Gul

Princeton University - Department of Economics

Date Written: July 1998

Abstract

We study political compromise founded on tacit cooperation. Two political parties must share a fixed pie in each of an infinite sequence of periods. In each period, the party in power has ultimate authority to divide the pie. Power evolves according to a Markov process among a set of political states corresponding to different degrees of political strength for the two. The political strength of each party is a state variable, and the game is dynamic, rather than repeated. Allocations in an efficient, sub-game perfect equilibrium do not follow a Markov process. Rather, a party's share reflects not only its current strength, but also how it got there in the recent history. We characterize the efficient division processes for majority rule and supermajority rule, and ask whether one regime allows greater compromise than the other.

JEL Classification: C73, D78

Suggested Citation

Dixit, Avinash K. and Grossman, Gene M. and Gul, Faruk R., A Theory of Political Compromise (July 1998). CEPR Discussion Paper Series No. 1935, Available at SSRN: https://ssrn.com/abstract=129033

Avinash K. Dixit (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
609-258-4000 (Phone)
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Gene M. Grossman

Princeton University - Princeton School of Public and International Affairs ( email )

300 Fisher Hall
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Princeton, NJ 08544-1021
United States
609-258-4823 (Phone)
609-258-1374 (Fax)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Faruk R. Gul

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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