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Policy Dynamics and Inefficiency in a Parliamentary Democracy with Proportional Representation

51 Pages Posted: 26 Mar 2007  

David P. Baron

Stanford University - Graduate School of Business

Daniel Diermeier

Northwestern University - Kellogg School of Management

Pohan Fong

University of Rochester - Department of Economics

Date Written: February 2007

Abstract

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.

Keywords: political economy

JEL Classification: D70, H50

Suggested Citation

Baron, David P. and Diermeier, Daniel and Fong, Pohan, Policy Dynamics and Inefficiency in a Parliamentary Democracy with Proportional Representation (February 2007). Stanford University Graduate School of Business Research Paper No. 1960. Available at SSRN: https://ssrn.com/abstract=969415 or http://dx.doi.org/10.2139/ssrn.969415

David P. Baron (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3757 (Phone)
650-725-6152 (Fax)

Daniel Diermeier

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Pohan Fong

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States
(585) 242-0398 (Phone)

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