The industrial organization of Congress (Weingast-Marshall)

1. The industrial organization of Congress (Weingast-Marshall) • The organization of Congress meets remarkably well the electoral needs of its members.(..) If a group of planners sat down and tried to design a pair of American national assemblies with the goal of serving members’ electoral needs year in and year out they would be hard pressed to improve on what exists. (David Mayhew )

2. The industrial organization of Congress • A huge variety of interests are represented in the legislature and almost none is represented by a majority • The diversity of interests creates gains from exchange • If public policies reflect a series of bargains among various interests, how are these bargains maintained over time ?

3. Transaction costs 2 problems: • Imperfect observability • Incompleteness of contracts (moral hazard problem)

4. Three assumptions

5. Vote trading (or logrolling) models, Tullock 1981

6. Not only porkbarrel politics • Pork Barrel programs (distributive policies): benefit flows are contemporaneous to different legislators; Usual legislative instrument to prevent future reneging: omnibus bill However many programs imply: • Noncontemporaneous benefit flows • Nonsimultaneous exchange

7. Repeat play and reputation: useful but not always sufficient

8. An idealized legislative committee system Gatekeeping power

9. An idealized legislative committee system

10. Consequences of the idealized legislative committee system on trade enforcement • One group of legislators seeks dams and bridges; another wants regulatory benefits. • The 2 groups now are in two different committees. • The control over the agenda within its jurisdiction implies that a committee has a veto power over the proposal of others • Ex post reneging is not possible anymore

11. Consequences of the idealized legislative committee system on the type of policies and the identity of the “gainers”

12. Consequences of the idealized legislative committee system on the type of coalitions • Successful coalitions must include the members of the relevant committee • Policy and coalitions are more durable: small electoral shifts do not matter

13. Summary

14. Why Parties? (Aldrich) • There is a set of incentives for ambitious politicians to “turn to parties”. They can solve efficiently difficult problems • Collective action (social choice)problems in policy making • Collective action (public goods) problems in elections

15. Why Parties? (Aldrich)Collective Action problems (social choice type) • Independent Voting Outcome All bills pass Payoff (-2A , -2B , -2C) • Pareto optimal result : Defeat all bills Payoff (0, 0, 0) • Party of A and B: Outcome Pass only X Payoff (4,3,-9)

16. Why Parties? (Aldrich)Collective Action problems (public good type) Nash Equilibrium, Pareto inferior

17. Collective Action problems with “Universalism” (pork barrel projects) • Independent Voting Outcome All bills fail Payoff (0A , 0B , 0C) • Pareto optimal result : Pass all bills Payoff (1, 1, 1) • Universalism norm : Pass all bills Payoff (1, 1, 1) • Expected utility of minimal voting coalition (Weingast 1979) Payoff (2/3,2/3,2/3) Each mvc member receives 2, Each non mvc member receives -2 ; probability to be mvc member= 2/3; Exp.utility= (2/3)*(2) + (1/3)*(-2)=2/3 • Party of A and B: Outcome Pass bills X and Y Payoff (2,2,-2)

18. Convenience to form a party even without collective action problems (pork barrel projects) • Independent Voting Outcome All bills fail Payoff (0A , 0B , 0C) • Pareto optimal result : Pass all bills Payoff (0A , 0B , 0C) • Universalism norm : Pass all bills Payoff (0A , 0B , 0C) • Expected utility of minimal voting coalition (Weingast 1979) Payoff (0,0,0) Each mvc member receives 1, Each non mvc member receives -2 ; probability to be mvc member= 2/3; Exp.utility= (2/3)*(1) + (1/3)*(-2)=0 • Party of A and B: Outcome Pass bills X and Y Payoff (1,1,-2)

19. Pork Barrel, Universalism and Party Formation • n legislators; m=minimal majority size • b= benefit to pass a bill for the winner • C=general cost of the bill • c=C/n individual cost (for the legislator, namely the costituency) Any legislator in choosing independently will vote for any bill for which b-c>0 However in order to approve his/her bill a legislator need to find a majority; in other terms he/she has to pay the cost of other bills….. • A series of pork barrel bills will pass if b – mc >0 for all members of a minimum winning coalition; in other terms if the benefit to approve his/her project overcomes the cost to approve the bills of the other coalition members.

20. Pork Barrel, Universalism and Party Formation • However the benefit b can really take place only if the MP is member of the winning coalition. • p= a priori probability to be member of a minimum winning coalition • If all minimum winning coalitions are equally likely then each MPs expects to receive p(b-mc)+(1-p)(-mc)=pb-mc • The critical problem here is the uncertainty. Binding unanimous coalition that cancels the uncertainty (universalism) can be a better institutional solution (condition: b-nc>pb-mc) • Forming a party is even more convenient. (condition: b-mc>pb-mc always true)

21. Social Choice problems (one bill against another) • Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? • Sequential agenda:sincere voting

22. Social Choice problems (one bill against another) • Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? • Sequential agenda: sophisticated voting

23. Social Choice problems (one bill against another) • Round-robin tournament: Y beats Z (A,C); Z beats X(B,C); X beats Y (A,B) ?? • Equiprobable order of voting Expected outcome(-2/3, -2/3, -2/3) • Temporary coalitions: cycle. • Party of A and B Outcome Pass X. Payoff (4,3,-9)

24. Absence of a Social Choice problem • Round-robin tournament: X beats Y (A,B) ,Y beats Z (A,C); X beats Z (A,C);Outcome X • Sequential agenda: sincere voting

25. Absence of a Social Choice problem • Round-robin tournament: X beats Y (A,B) ,Y beats Z (A,C); X beats Z (A,C);Outcome X • Sequential agenda: sophisticated voting

26. Social Choice problems (only one bill to approve) • Round-robin tournament: X beats Y (A,B) ,Y beats Z (A,C); X beats Z (A,C);Outcome X • Equiprobable order of voting All pass X.Payoff(4,3,3) • Temporary coalitions: (A,B),(B,C), (A,C) pass X. Payoff(4,3,3) • Party of A and B Outcome Pass X. Payoff (4,3,3) • No incentive for party formation!!

27. Collective action and electoral mobilization • Two problems: • The calculus of voting : R=PB+D-C; P=probability that the vote affects the outcome; B=the differential benefit from the election of the preferred candidate; D= the duty as citizen. P is usually very small. • Becoming informed

28. Incentive for Party Affiliation for candidates • Affiliation provides the candidate of a brand name, useful to convey in a cheap way information • Affiliation provides economies of scale for the party campaign efforts.