Dynamics and Stability of Constitutions, Coalitions, and Clubs

Abstract

Consider the problem of a society choosing its constitution. Naturally, the current rewards from adopting a specific constitution will influence this decision. Yet, as long as the members of the society are forward-looking and patient, the future implications of the constitution may be even more important. For example, a constitution that encourages economic activity and benefits the majority of the population may nonetheless lead to future instability or leave room for a minority to seize political control. If so, the society-or the majority of its members-may rationally shy away from adopting such a constitution. Many problems in political economy, club theory, coalition formation, organizational economics, and industrial organization have a structure resembling this example of constitutional choice.We develop a tractable framework for the analysis of dynamic collective decisions. Consider a society consisting of a finite number of infinitely lived individuals. It starts in a particular state. A state in our framework represents both economic and political arrangements. In particular, it determines stage payoffs (for example, by shaping economic allocations) and also how the society can determine its future states (e.g., which subsets of individuals can change the economic allocations andIn dynamic collective decision making, current decisions determine the future distribution of political power and influence future decisions. We develop a general framework to study this class of problems. Under acyclicity, we characterize dynamically stable states as functions of the initial state and obtain two general insights. First, a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently powerful groups. Second, efficiency-enhancing changes may be resisted because of further changes they will engender. We use this framework to analyze dynamics of political rights in a society with different types of extremist views. (JEL D71, D72, K10)

Bargaining in Standing Committees with an Endogenous Default: Figure 1

“…Policy outcomes of our no-delay SMPEs can be interpreted as a special case of Acemoglu et al's (2012) "dynamically stable states," which are defined as political states reached in a finite number of periods (and never changed) in pure strategy SMPEs of bargaining games with an endogenous default and patient players. Hence, our results characterize and prove existence of a class of dynamically stable states in voting situations where, in contrast to those studied in Acemoglu et al (2012), the set of policies is infinite and policy preferences are not acyclic. Baron and Bowen's (2013) notion of a coalition Markov perfect equilibrium exhibits a similar no-delay property; the equilibria they construct are in mixed strategies.…”

Flip a Coin or Vote: An Experiment on Choosing Group Decision

“…Requiring a qualified majority to change the constitution is an easy way to create more self-stability. A similar idea is proposed in an explicitly dynamic setting by Acemoglu et al (2012). Given some constraints that guarantee sufficient patience and prevent Condorcet-like voting cycles, these authors show that the stability of the constitution crucially depends on the set of other dynamically stable constitutions.…”

Matching with Externalities

“…Such indifference situations never arise in the constructions 1 and 2 above. For an example of a theory of far-sighted stability based on deterministic assumptions on agents' reactions see, e.g., Acemoglu, Egorov, and Sonin (2012). Theories of far-sighted stability that are not directly based on such deterministic assumptions are harder to map into our framework; see, e.g., Konishi and Ünver (2007) and Ray and Vohra (2015).…”