Symposium

Economic Theory

, Volume 49, Issue 3, pp 703-738

A dynamic theory of parliamentary democracy

  • David P. BaronAffiliated withGraduate School of Business, Stanford University
  • , Daniel DiermeierAffiliated withDepartment of Managerial Economics and Decision Sciences (MEDS) and Ford Motor Company Center for Global Citizenship, Kellogg School of Management, Northwestern University Email author 
  • , Pohan FongAffiliated withDepartment of Economics and Finance, City University of Hong Kong

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Abstract

This paper presents a dynamic model of elections, 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 based on their representation and the policies they would choose as a function of the status quo. The status quo thus affects both the election outcomes and the bargaining power of the parties during government formation. A formateur party therefore has incentives to strategically position the current policy to gain an advantage in both the next election and the subsequent bargaining over government formation and policy choice. These incentives can give rise to centrifugal forces that result in policies that are outside the Pareto set of the parties.

Keywords

Parliamentary democracy Proportional representation Government formation Policy dynamics Lack of commitment Inefficiency

JEL Classification

D7 C7 H1