Gridlock and inefficient policy instruments

Abstract

Why do rational politicians choose inefficient policy instruments? Environmental regulation, for example, often takes the form of technology standards and quotas even when cost-effective Pigou taxes are available. To shed light on this puzzle, we present a stochastic game with multiple legislative veto players and show that inefficient policy instruments are politically easier to repeal than efficient instruments. Anticipating this, heterogeneous legislators agree more readily on an inefficient policy instrument. We describe when inefficient instruments are likely to be chosen, and predict that they are used more frequently in (moderately) polarized political environments and in volatile economic environments. We show conditions under which players strictly benefit from the availability of the inefficient instrument.

On the separation of executive and legislative powers: Executive independence, liberty, and social welfare

“…An important line of work, related to the above, is that which explores models of checks and balances with an endogenous quo—i.e., today’s policy is tomorrow’s status quo. Various inefficiencies can arise in such settings due to the possibility of gridlock (in particular, see Austen-Smith et al 2019; Dziuda and Loeper 2016; Dziuda and Loeper 2018; Dziuda and Loeper 2019). In our model, gridlock is not a possibility—i.e., the faction that controls the legislature is able to unilaterally set policy and the only question is whether the executive enforces that policy.…”

Game Analysis of the Evolution of Local Government’s River Chief System Implementation Strategy

“…Others have analyzed the equilibrium outcomes of the firm–government game under different institutional arrangements [ 5 ], and some studies have analyzed how environmental regulation affects the direction of industry output equilibrium in the context of Cournot competition and oligopoly [ 6 ]. In the literature on environmental strategy games among local governments, some studies have analyzed rational government and inefficient environmental regulation from the perspective of the Pigou tax [ 7 ], whereas others have used evolutionary games to analyze the evolutionary paths and stabilization strategies of local governments in air pollution control [ 8 ].…”

Gridlock, Leverage, and Policy Bundling

“…This paper contributes to the literature on bargaining and gridlock. Within this literature, many causes of gridlock have been proposed; these include polarization (Romer and Rosenthal, 1978;Krehbiel, 1996), divided government (Binder, 2003), reputation concerns (McCarty, 1997;Abreu and Gul, 2000;Groseclose and Mc-Carty, 2001;Cameron and McCarty, 2004;Patty, 2016), policy-search frictions (Callander, 2011;Acharya and Ortner, 2018), dynamic-bargaining concerns with an endogenous status-quo (Dziuda and Loeper, 2016;Austin-Smith, Dziuda, Harstad and Loeper, 2019), and supermajority institutions (Brady and Volden, 1998). Our paper highlights a new cause of gridlock that stems from policy bundling in dynamic environments; this effect runs contrary to the prevailing wisdom that policy bundling reduces gridlock by facilitating compromise (Krutz, 2000(Krutz, , 2001Sinclair, 1997).…”