American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Gambling over Public Opinion
American Economic Review
(pp. 3492–3521)
Abstract
We consider bargaining environments in which public opinion provides 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.Citation
Basak, Deepal, and Joyee Deb. 2020. "Gambling over Public Opinion." American Economic Review 110 (11): 3492–3521. DOI: 10.1257/aer.20181495Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior