Working Paper: NBER ID: w14239
Authors: Daron Acemoglu; Georgy Egorov; Konstantin Sonin
Abstract: A central feature of dynamic collective decision-making is that the rules that govern the procedures for future decision-making and the distribution of political power across players are determined by current decisions. For example, current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations. We develop a general framework for the analysis of this class of dynamic problems. Under relatively natural acyclicity assumptions, we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness. We show how this framework can be applied in political economy, coalition formation, and the analysis of the dynamics of clubs. The explicit characterization we provide highlights two intuitive features of dynamic collective decision-making: (1) a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society; (2) efficiency-enhancing changes are often resisted because of further social changes that they will engender.
Keywords: Dynamic Decision-Making; Political Economy; Coalition Formation; Constitutional Stability
JEL Codes: C71; D71; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of alternative stable arrangements preferred by a sufficiently powerful group (D72) | stability of a state (C62) |
| proposed reforms (E69) | potential instability (C62) |
| structure of decision-making (D70) | social welfare (I38) |
| transaction costs (D23) | stability of states (C62) |
| dynamics of decision-making processes (D91) | stability of political arrangements (F55) |