On Dynamic Compromise

Abstract

What prevents majorities from extracting surplus from minorities in legislatures? We study an infinite horizon game where a legislative body votes to determine distributive policy each period. Proposals accepted by a simple majority are implemented, otherwise the status quo allocation prevails. We construct a symmetric Markov perfect equilibrium that exhibits compromise in the following sense: if the initial status quo allocation is not too unequal, then the Markov process is absorbed into allocations in which more than a minimum winning majority receives a positive share of the social surplus with positive probability. The compromise is only sustainable if, starting from the unequal allocations, the Markov process is absorbed into allocations in which there is a complete absence of compromise. The compromise equilibrium exists when discounting is neither too small nor too large. We find that, contrary to intuition, the range of discount factors for which this equilibrium exists increases as the number of legislators increases. In this sense, compromise is easier in larger legislatures.