Working Paper: CEPR ID: DP10154
Authors: Hans Gersbach; Stephan Imhof; Oriol Tejada
Abstract: We examine optimal procedures for public project provision, financing, and redistribution in democracy. We consider a large and heterogeneous decision body and show that first-best outcomes are obtained by a procedure that involves two proposal-making rounds, the right of the minority to move first, and a ban on subsidies for the agenda-setters. We explore the robustness of the result and consider applications of our rules. For instance, the result rationalizes those rules of democracies that grant minorities in the electorate or in parliament the right to initiate collective decisions on new project proposals. We further show that the above procedure constitutes the unique minimal form of political competition that ensures first-best outcomes.
Keywords: constitutional design; majority rule; public project provision; subsidies
JEL Codes: D72; H40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Minority's right to propose first, coupled with a ban on subsidies for agenda-setters (D72) | socially optimal outcomes (D61) |
| First proposal includes necessary subsidies to garner majority support (D72) | second proposal can effectively eliminate these subsidies (H23) |
| First agenda-setter anticipates second agenda-setter's response (C78) | proposal maximizes social welfare by avoiding unnecessary subsidies (D69) |
| Two-round procedure is necessary and sufficient for achieving first-best outcomes (H21) | robust causal relationship between procedural design and social efficiency (C90) |