In this paper, I discuss recent developments in political economy. By focusing on the microeconomic side of the discipline, I present an overview of current research on four of the fundamental institutions of a political economy: voters, politicians, parties and governments. For each of these topics, I identify and discuss some of the salient questions that have been posed and addressed in the literature, present some stylized models and examples, and summarize the main theoretical findings. Furthermore, I describe the available data, review the relevant empirical evidence, and discuss some of the challenges for empirical research in political economy.

We analyze a stochastic bargaining game in which a new dollar is divided among committee members in each of an infinity of periods. In each period, a committee member is recognized and offers a proposal for the division of the dollar. The proposal is implemented if it is approved by a majority. If the proposal is rejected, then last period’s allocation is implemented. We show existence of equilibrium in Markovian strategies. It is such that irrespective of the initial status quo, the discount factor, or the probabilities of recognition, the proposer extracts the entire dollar in all periods but the initial two. We also derive a fully strategic version of McKelvey’s (1976), (1979) dictatorial agenda setting, so that a player with exclusive access to the formulation of proposals can extract the entire dollar in all periods except the first. The equilibrium collapses when within period payoffs are sufficiently concave. Winning coalitions may comprise players with high instead of low recognition probabilities, ceteris paribus.

Stakeholder negotiation is an increasingly important policymaking tool. However, relatively little is understood about the relationship between the structure of the negotiating process and the effectiveness with which participating stakeholders can pursue their individual interests. In this paper, we apply the Rausser-Simon multilateral bargaining model to a specific negotiation process, involving water storage capacity and use in the upper part of the Adour Basin in south-western France. In the Rausser-Simon model, the elements of negotiation structure include: the list of participants at the bargaining table; the set of issues being negotiated; the decision rule; political weights (“access”); and the nature of the outcome if agreement cannot be reached. The richness of the data and institutional information available to us provides a realistic environment in which to examine the effect of negotiation structure on participant power. We focus in particular on

We analyze the legislative interaction of representatives from big and small states in a Bicameral legislature that decides for the allocation of a fxed resource among the states. We assume that the two houses are mal-apportioned and big states are underrepresented in the upper house. We study the effect of this and other institutional features on the relative welfare of big and small states and on equilibrium coalitions. Contrary to common belief, an increase in the representation of small states may reduce their expected payoff, ceteris paribus. Also, contrary to interpretations of minimum winning coalition theorems, excess majorities may occur in one of the two houses. When proposal making tends to be dominated by big (small) states, excess majorities occur in the upper (lower) house. We find that higher proposal power increases the payoff of a group of states. Changes in the majority requirements in the two houses and expansion to encompass more small (big) states have a non-monotonic effect on the relative welfare of the two groups. We conclude our analysis with an empirical application using calibrations results for the 103d US Congress and the legislative institutions of the European Union before and after the Treaty of Nice.

We prove existence of stationary Markov perfect equilibria in an infinite-horizon model of legislative policy making in which the policy outcome in one period determines the status quo in the next. We allow for a multidimensional policy space and arbitrary smooth stage utilities. We prove that all such equilibria are essentially in pure strategies and that proposal strategies are differentiable almost everywhere. We establish upper hemicontinuity of the equilibrium correspondence, and we derive conditions under which each equilibrium of our model determines a unique invariant distribution characterizing long run policy outcomes. We illustrate the equilibria of the model in a numerical example of policy making in a single dimension, and we discuss extensions of our approach to accommodate much of the institutional structure observed in real-world politics.

We analyze a divide-the-dollar majority rule bargaining game with an endogenous reversion point. A new dollar is divided in each of an infinity of periods according to the proposal of a probabilistically recognized legislator - if a majority prefer so - or according to previous period's decision otherwise. Players' payoff is the discounted sum of per period utilities. We show existence of a Markov Perfect Nash Equilibrium; it is such that irrespective of initial conditions outcomes are absorbed within an irreducible, finite set consisting of allocations that give the entire dollar to the proposer. Contrary to results for amendment agendas without future interaction after the final vote, the decision within each period may be covered by the status quo. Outcomes may be ex ante Pareto inefficient. For sufficiently large legislature a dictatorial agenda setter can impose her ideal point in all periods but the initial two a la McKelvey, 1976, 1979, even though legislators are farsighted. The equilibrium collapses for high degrees of risk aversion, or when the legislature is small and recognition probabilities are asymmetric. Contrary to the comparative static in the Baron-Ferejohn model (Eraslan, 2002) higher probabilities of recognition render legislators less expensive coalition partners ceteris paribus.

We study a model of sequential bargaining in which, in each period before an agreement is reached, the proposer’s identity (and whether there is a proposer) are randomly determined; the proposer suggests a division of a pie of size one; each other agent either approves or rejects the proposal; and the proposal is implemented if the set of approving agents is a winning coalition for the proposer. The theory of the fixed point index is used to show that stationary equilibrium expected payoffs of this coalitional bargaining game are unique. This generalizes Eraslan (2002) insofar as: (a) there are no restrictions on the structure of sets of winning coalitions; (b) different proposers may have different sets of winning coalitions; (c) there may be a positive probability that no proposer is selected.

2000, and is based in the School of Economics at the University of Nottingham. The focus for the Centre is research into individual and strategic decision‐making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non‐cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas.