Working Paper: NBER ID: w25033
Authors: Renee Bowen; Vincent Anesi
Abstract: We study optimal policy experimentation by a committee. We consider a dynamic bargaining game in which committee members choose either a risky reform or a safe alternative each period. When no redistribution is allowed the unique equilibrium outcome is generically inefficient. When redistribution is allowed (even small amounts), there always exists an equilibrium that supports optimal experimentation for any voting rule without veto players. With veto players, however, optimal policy experimentation is possible only with a sufficient amount of redistribution. We conclude that veto rights are more of an obstacle to optimal policy experimentation than constraints on redistribution.
Keywords: policy experimentation; redistribution; voting rules; dynamic bargaining
JEL Codes: C73; C78; D61; D78; H61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of redistribution (D39) | inefficient outcomes (D61) |
| redistribution allowed (D39) | optimal stopping rule (C61) |
| veto rights present + sufficient redistribution (D72) | optimal policy experimentation (C93) |
| veto rights (D72) | obstacle to experimentation (C90) |
| lack of compensatory mechanisms (D52) | impedes efficient policy experimentation (D72) |
| redistribution levels (H23) | likelihood of socially efficient experimentation (C93) |