Collaborative Research: Veto Bargaining: Delegation and Non-Coasian Dynamics

Project: Research project

Project Details

Description

Veto Bargaining: Delegation and Non-Coasian Dynamics
Project Summary
This proposal consists of two broad lines of theoretical research on the topic of veto bargaining.
Veto bargaining concerns situations in which one agent or group can make proposals but another
must approve them. Applications abound: legislatures (e.g., U.S. Congress) propose bills that
executives (e.g., the President) can veto; judicial rulings of lower court can be overturned by higher
courts; CEOs or Boards sometimes need shareholders to sign off on certain decisions; and search
committees put forward candidates but the decision of whether to hire rests elsewhere.
The proposal studies a framework in which there are effectively two agents: Proposer, who
makes proposals, and Vetoer, who decides whether to accept or maintain a status quo. Bargaining
is over a spatial dimension of actions or policies; i.e., the agents have single-peaked preferences.
Crucially, Vetoers preferences are her private information.
Intellectual Merit
The first part of the project takes a mechanism design approach to identify Proposer-optimal
outcomes when Proposer has full commitment. This approach is useful both normatively and
positively. A connection is made to optimal delegation. Among other things, the results will
show that under reasonable conditions incomplete information can dramatically corrode Proposers
bargaining power, while still resulting in efficient outcomes. This contrasts simultaneously with the
takeaways from prior work both from veto bargaining with complete information (when Proposer
extracts significant surplus) and other mechanism design contexts (in which inefficiency typically
obtains because of private information).
The second part of the research project studies a dynamic framework in which Proposer has limited
commitment. He cannot commit to not coming back to Vetoer with a proposal in the next period
should the current proposal be rejected. We use the results from the first part to understand
how Proposer is affected by limited commitment. A familiar intuition when players are patient is
that of Coasian dynamics: regardless of the commitment solution, Proposers lack of commitment
should erode her bargaining power and lead to Vetoer getting her ideal outcome, perhaps modulo
some minimum outside option payoff to Proposer. We will show that this intuition fails in
our environment, owing to single-peaked preferences. In particular, Proposer might obtain her
commitment payoff. The non-Coasian dynamics appear to be novel.
Broader Impact
The projects herein should have broad impacts on our theoretical and practical understanding
of veto bargaining. Given the centrality of bargaining in economic theory and applications, the
research has the potential to provide transferable insights. The relevance of veto bargaining in the
political sphere means that the value of menus/screening identified here could have normative and
perhaps even prescriptive benefits in an important applied domain.
1
StatusActive
Effective start/end date8/1/207/31/23

Funding

  • National Science Foundation (NSF): $208,911.00

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