Dynamic Coalitions

64 Pages Posted: 25 Jan 2013 Last revised: 12 May 2016

See all articles by David P. Baron

David P. Baron

Stanford University - Graduate School of Business

T. Renee Bowen

University of California, San Diego

Date Written: July 22, 2015

Abstract

We present a theory of dynamic coalitions for a legislative bargaining game in which policies can be changed in every period but continue in effect in the absence of new legislation. We characterize Markov perfect equilibria with dynamic coalitions, which are decisive sets of legislators whose members prefer to continue the current policy rather than change to another policy. The policies supported by dynamic coalitions satisfy necessary and sufficient existence conditions of internal stability and exclusion risk. Dynamic coalitions can be minimal winning or surplus and can award positive allocations to non-coalition members. The range of attainable dynamic payoffs is characterized, and the policies supported can be efficient or inefficient. Vested interests can support policies that no legislator would propose if forming a new coalition. If uncertainty is associated with policy implementation, a continuum of policies are supported. These equilibria have the same allocation in every period when the coalition persists. Dynamic coalitions also exist in which members tolerate a degree of implementation uncertainty, resulting in policies that can change without the coalition changing.

Keywords: Coalitions, Dynamic Bargaining, Policy Stability

JEL Classification: C73, D72

Suggested Citation

Baron, David P. and Bowen, T. Renee, Dynamic Coalitions (July 22, 2015). Stanford University Graduate School of Business Research Paper No. 2128, Available at SSRN: https://ssrn.com/abstract=2206536 or http://dx.doi.org/10.2139/ssrn.2206536

David P. Baron

Stanford University - Graduate School of Business ( email )

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

T. Renee Bowen (Contact Author)

University of California, San Diego ( email )

9500 Gilman Drive #0519
La Jolla, CA 92093-0519
United States
6507211299 (Phone)

HOME PAGE: http://https://sites.google.com/site/tamarareneebowenlyn/

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