Self-enforcing Partisan Procedures

Daniel Diermeier (University of Chicago)
Carlo Prato (Columbia University)
Razvan Vlaicu (Inter-American Development Bank)

Abstract : We study how polarization affects procedural choice in deliberative bodies. Using a multi-stage Romer-Rosenthal bargaining framework, we analyze how a group chooses a procedure (specifying members’proposal rights) to bargain over a one-dimensional policy. When members bargain over procedures, they do not know whether their interest will be fully aligned across party lines (high-polarization issues) or somewhat heterogeneous (low-polarization issue), and they cannot commit not to revoke them after learning the issue. Our notion of policy polarization captures both the likelihood of a high-polarization issue and the degree of intraparty heterogeneity under a low-polarization issue. We establish that in equilibrium proposal rights will be (i) concentrated in the hands of a few non-moderate members, and (ii) systematically biased in favor of the majority party. As policy polarization increases, so does the partisan bias in equilibrium procedures.

The Dynamics of Policy Complexity

Keiichi Kawai (UNSW Sydney)
Ruitian Lang (Australian National University)
Hongyi Li (UNSW Sydney)

Abstract : This paper explores the origins of bureaucratic complexity in public policy. In a model of incremental policymaking where entanglements between policy elements complicate attempts to undo existing policy, policymakers are biased towards increasing policy complexity -- especially when policy is already complex. Policy evolution is thus path-dependent: simple policies remain simple, whereas complex policies become more complex. Complexity emerges and persists under political conflict between ideologically-extreme policymakers, and when legislative frictions impede policymaking. Patience is not a virtue: farsighted policymakers deliberately engage in obstructionism, introducing complex policies to shackle future opponents.

Integration or Outsourcing: Combining Ex Ante Distortions and Ex Post Inefficiencies

Verena Nowak (DICE, Heinrich Heine University Düsseldorf)

Abstract : Final good production often requires a firm’s headquarter services and a foreign supplier’s manufacturing input. With incomplete contracts, firms that decide whether to source this input from an integrated or an outsourced supplier do not only have to consider the ex ante production incentives that influence the own and the supplier’s underinvestment problem. Instead, firms also have to take into account the ex post risk that the supplier absorbs the producer’s knowledge to become a competitor for the final good, both under outsourcing and integration. In line with the outcome of the knowledge protection approach, with an exogenous probability of such ex post inefficiencies associated with one particular organizational form, this organizational form becomes less likely. However, considering the supplier’s incentives to become a competitor, integrated suppliers are more likely to become a competitor than outsourced suppliers such that outsourcing becomes per se more likely. As a competitor lowers the producer’s profit, the producer might have an incentive to deter the supplier from becoming a competitor. More precisely, the producer has this incentive whenever the supplier’s manufacturing input is not too important for the production.