Gambling over Public Opinion
with Joyee Deb
American Economic Review (2020)
Abstract: We consider bargaining environments in which public opinion pro- vides leverage by making compromises costly. Two parties make initial demands, before knowing the public opinion. If deadlocked, they can bargain again after public opinion forms, but suffer reputation costs if they compromise, i.e., scale back their demands. We show that in equilibrium, parties may choose to make incompatible demands initially and gamble over public opinion even though one or both parties must bear a cost later. We characterize when deadlocks arise, and how this affects the welfare of the public in a representative two-party democracy compared to a direct democracy.
Presentation: (By one of the authors) Yale, Iowa State, Stockholm School of Economics, ISB, Triangle Microeconomics Conference (UNC Chapel Hill), North American Econometric Society Meetings2018 (U C Davis), International Conference on Game Theory (Stony Brook), IIM Bangalore, Midwest Theory2018 (Vanderbilt), UC3M, Asoka University, Winter School DSE, Stanford, Penn State