The Political Hare and the Stag Hunt

Abstract

We theoretically and experimentally study an indefinite dynamic game intended to capture two main aspects of the political process -- elections in which opposing factions compete by spending resources and policy-making in which those same factions are required to cooperate for the successful legislature. The main theoretical result is that limits on spending in the election contest increase cooperation. On the experimental side, we first test and confirm theoretical predictions and then explore whether such limits could arise endogenously. We find that a majority of subjects are successful in establishing a consensus on low limits, leading to higher cooperation and welfare.

Keywords: Political Economy, Dynamic Games, Cooperation, Endogenous Institutions, Experiments