Gambling over Public Opinion
American Economic Review · 2020 · Volume 110 · Issue 11
Abstract
We consider bargaining environments in which public opinion provides leverage by making compromises costly. Two parties make initial demands, before knowing the public opinion. If deadlocked, they can bargain again after public opinion forms, but suffer reputation costs if they compromise, i.e., scale back their demands. We show that in equilibrium, parties may choose to make incompatible demands initially and gamble over public opinion even though one or both parties must bear a cost later. We characterize when deadlocks arise, and how this affects the welfare of the public in a representative two-party democracy compared to a direct democracy.
Keywords
Bargaining Theory, Matching Theory, Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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