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Bargaining, Transaction Costs, and Coalition Governance - Lupia Appunti scolastici Premium

Materiale didattico per il corso di Politica comparata del prof. Marco Giuliani. Trattasi del saggio di Arthur Lupia dal titolo "Bargaining, Transaction Costs, and Coalition Governance" all'interno del quale sono analizzati i rapporti di coalizione fra i partiti politici di governo e si fornisce un modello teorico... Vedi di più

Esame di Politica comparata docente Prof. M. Giuliani



One type of instance in which discount rates come into play empirically is when parties

delegate authority to “term-limited” party leaders. Consider Ireland following the 1989 election.

Then, long-time Fianna Fáil leader Charles Haughey, in the twilight of his career, broke his

party’s no-coalition rule so that he could form a coalition government with the Progressive

Democrats (PD). This was remarkable not just because it conflicted with Fianna Fáil’s long-

standing contempt for coalitions, but also because there was considerable bad blood between

the leaders of the two parties. Analysts have suggested, however, that if Haughey had allowed

negotiations to continue, he might have lost his last opportunity to become prime minister.

Indeed, he might even have been deposed as leader of his party (Laver and Arkins 1990,

Mitchell and Marsh 1999). Haughey had a high discount rate, which likely propelled him to

negotiate an unconventional agreement.

A critical implication of how discount rates affect coalition bargaining is that deadlines

matter. This is particularly important when a deadline affects parties differently. Consider, for

example, Norway's 1987 Presthus debacle. The Parliament was about to take its summer

recess. With no further meeting time scheduled, there was no opportunity for the non-socialist

parties to topple Gro Harlem Brundtland’s Labor minority government before local and

regional elections in September. Rolf Presthus was the leader of a Conservative party that had

strongly committed itself to toppling the government. He felt compelled to defeat Brundtland’s

government, even if it meant large policy concessions to prospective coalition partners and the

risk of failure. As it turned out, Presthus’ attempt failed, and he paid a heavy political and

personal price. The timing of his apparently self-defeating behavior suggests that he was driven

by a high discount rate, by his need to show results before the election (Strøm 1994).

Indeed, those with low discount rates (i.e., parties that can afford to wait) can find it

advantageous to use time strategically. Such parties may know that if they wait another week to

come to an agreement, a desperate partner (perhaps one whose time as formateur is about to

end) will offer them a much better deal. Therefore, we should be cautious about the

conventional wisdom that the time it takes a coalition to negotiate tells us something about

the quality of governance. As Gregory M. Luebbert observed, “it is wrong to assume that,

because interparty negotiations take a long time, much is being negotiated among the parties”

(Luebbert 1986: 52). If people have differing preferences over time and use time strategically,

the length of negotiations may reveal nothing about the policy differences between the partners

or the likely success of the final agreement. Time need not imply craftsmanship in bargaining.


Instead, bargaining models show that long negotiations can be a sign that at least one coalition

partner is willing to be patient in order to get a more favorable contract (see, e.g., Fudenberg

and Levine 1998 on the role of patience). The same models reveal no relationship between

length of bargaining and the success of the agreement.

Uncertainty and Transaction Costs Induce Restrictive Arrangements

We address additional questions about how uncertainty affects coalition politics by

focusing on transaction costs. A key tenet of transaction cost economics is that bargainers

account for opportunism when making and maintaining coalitional arrangements.

Opportunism arises when coalition members can use uncertainty to benefit at other members’

expense. Attention to opportunism is particularly important in agreements where one party

receives benefits before another. In such cases, the party that gets its payoff early may be

tempted not to uphold its end of the bargain later on. If coalition members anticipate such

reactions and have no way to guard against them, then otherwise valuable agreements may not

be reached.

When uncertainty and opportunism are paired as described above, one likely result is

increased transaction costs. Williamson's (1975) research on this topic is particularly

noteworthy. Before his work, numerous claims about the performance of markets and

negotiations were made as if transaction costs in such situations were negligible or could be

ignored. It was believed that if potential gains from trade existed, negotiations would lead to

their realization (present day versions of such arguments include the conclusion that parties

with similar policy interests will necessarily coalesce and the conclusion that such coalitions

will necessarily be more effective or longer lasting than others). Williamson’s transaction cost

economics approach shows such beliefs to be false -- uncertainty and opportunism can prevent

such outcomes. This work redirected analysts’ attention to how people structure their

arrangements when they are faced with an uncertain future (see, e.g., Williamson 1975, Epstein

and O’Halloran 1999).

While controversial in economics at the outset – many economists preferred to explain

bargaining outcomes strictly through analyses of the relative resources of participants – the


importance of transaction costs is now widely accepted. Indeed, as Williamson (1993: 105)

notes: “The logic of transaction cost economics … has been applied to a wide range of

phenomena – including vertical integration, vertical market restrictions, franchising,

labor market regulation, the organization of work, corporate finance and corporate

governance, regulation and deregulation, family firms, multinational firms, and the

economics of trust, among others. Furthermore… transaction costs economics has been

subject to numerous empirical tests – most of which are corroborative.”

To the extent that there was once a controversy on the matter, the transaction cost economics

approach has since scored a decisive victory.

For our purpose – explaining coalition governance – an important lesson from

Williamson is that bargainers have incentives to adapt to transaction costs by structuring

agreements in particular ways. For example, when uncertainty and the threat of opportunism

generate large transaction costs, coalition members have an incentive to seek restrictive

arrangements (i.e., contracts that provide at least some coalition members with minimal

flexibility). While restrictive arrangements may limit coalition members’ future discretion, they

can keep coalitions together in contexts of mistrust. In short, the threat of opportunism may

force coalitions to choose between viability and flexibility.

Transaction cost economics also directs attention to the unusual role of specialization in

coalition politics. The complexity of modern governance can provide parties and individuals

with an incentive to specialize. For parliaments as a whole, specialization can provide broad

benefits (e.g., certain members become so knowledgeable about a complicated subject that they

can simplify the topic for all other members). While specialization can be valuable for those

with expertise, greater expertise need not imply an advantage in bargaining. In fact, the

prospect of opportunism by other members can lead to a negative relationship between

expertise and walk-away values. In Germany, for example, the FDP has been a member of

several governing coalitions -- some dominated by the left and others by the right. Switching

sides for the FDP has been far from costless -- it has often required leadership change within the

party and has caused substantial turnover among party activists. While the FDP’s pivotal

position secured it a role in government, its previous commitments made its political assets


difficult to transfer, thus increasing the costs it faced for joining subsequent governments


(Poguntke 1999).

Attention to how transaction costs affect bargaining also directs us to the fact that

coalescence, by reducing uncertainty and curtailing opportunism, can produce convergent

expectations about government’s future actions among coalition partners. In complex

situations, the value of convergent expectations cannot be underestimated. Coalition members

who share the same beliefs about the consequences of their collective actions can act with

greater confidence regarding other members' promises. As a result, they are better able to adopt

a long-term perspective, and their decisions are more likely to be credible. As many important

policies require government to maintain support for an extended period of time (as is often the

case, for example, with economic reforms that involve painful transition periods), convergent

expectations can give everyone involved a greater confidence that they will realize long-term

benefits from short-term sacrifices.

Convergent expectations generate broader benefits as well. To see how, consider that

many government objectives can be achieved only if bureaucrats or private citizens cooperate

(i.e., the efficiency and legitimacy of a change in the tax code are helped if citizens do not defy

the changes). For such policies to work, outside interests (including private citizens) must opt to

"invest” in the government’s plan of action. If outside interests do not share convergent

expectations with the government, they may be reluctant to participate in activities that benefit

the country. With coalition-instilled convergent expectations, it becomes less risky for private

citizens to invest in publicly beneficial actions. Therefore, coalition agreements that counter

uncertainty and opportunism can generate broad collective benefits.

This point also reinforces our earlier claims about the drawbacks of floating majorities.

The promise of a stable coalition reduces the risk to any member of specializing because stable

coalitions are better able to offer long-term rewards. If coalition partners are better able to

specialize, the number of areas in which the government has expertise will grow. Such

investments in expertise permit the government to adapt to a wider range of unforeseen

contingencies, which, in turn, allows it to govern more effectively.

4 This kind of problem is known as one of asset specificity. Asset specificity is the degree to which an asset’s value

depends on the continuation of a specific relationship. A politician's assets are specific when he invests time and

prestige in pursuits that are difficult to transfer to other coalitions or portfolios. Asset specificity and walk-away

values can be negatively correlated – particularly when a coalition is capable of terminating a member after it

receives the value of that members’ specialization. 24

3. Electoral Connections, the Shadow of the Future and Termination

We now apply the framework to a specific, and important, stage in a coalition’s life

cycle – the decision to replace the government or dissolve parliament. In most parliamentary

democracies, such decisions can be made on any given day. As Lupia and Strom (1995: 648)

describe it, governments in parliamentary democracies lead a precarious existence:

"Typically, they can fall on any given day, and sometimes with little or no warning. The

circumstances surrounding coalition termination vary greatly, occasionally producing

great drama. Some politicians are forced from their cabinet offices in a daze, never

knowing what hit them. Others choose their date of departure and leave with smirks on

their faces."

In most parliamentary systems, election dates are not entirely fixed by a constitution, but

subject to decisions by members of parliaments themselves. In countries where coalition

governments are the norm, the timing of elections is the product of the kind of bargaining

dynamics described above. In what follows, we apply our framework to explain why, when, and

how coalition governments choose to end their reigns. The application is a formal model of

coalition decision-making (Lupia and Strøm 1995) in which termination decisions are made via

bargaining and where parties can factor voter reactions, transaction costs, and the shadow of the

future into their negotiations. After a brief description of the model itself, we focus on

conveying its main substantive insights. Lupia and Strom (1995) contains a complete

description of the model.

The Model

Here, we examine how common legislative powers affect the timing and consequences

of coalition terminations. In most parliamentary democracies, simple legislative majorities have

dismissal power (i.e., the power to recall the cabinet at any time). In many parliamentary

democracies, legislative majorities also have dissolution power (i.e., the power to dissolve

parliament and force early elections). We use the model to explain when and why

parliamentarians use these powers. We find that coalition terminations are not, as they are often


portrayed, automatic responses to external events. Instead, the causes and consequences of

coalition terminations are predictable and negotiated responses to political circumstances.

We clarify the causes and consequences of coalition termination by modeling coalition

bargaining, in a parliament with dismissal and dissolution powers, as a game between three

unitary parties. We develop a three-party model because doing so provides the simplest formal

framework for examining the bargaining dynamics of coalition government.

We call the three parties the "first" party, the "second" party, and the "out" party. Each

party's name indicates its relationship to the initial governing coalition. We describe the case in

which the first and second parties are members of the initial governing coalition, the out party is

not, and any two parties can form a new majority coalition. The only substantive distinction

between the first and second parties, upon which none of our results depend, is that the first

party reacts to the event before the second. We do not assume that a party's name necessarily

indicates its relative size. Thus, neither the first nor the second party need be the largest.

Each party's objective is to maximize the value it derives from its role in parliament. We

make three basic assumptions about these objectives. First, parties care about controlling seats

parliament. Each party prefers more seats to fewer seats, all else constant. Second, parties value

power within a governing coalition. Each party prefers to hold any particular portfolio than not

to do so, all else constant. We make no assumptions about the relative value of different

appointments or about whether cabinet and other portfolios are valued for policy or patronage

reasons. If we think of what a governing coalition does as dividing a valuable pie, then this

assumption is akin to stating that each party prefers larger pieces of pie to smaller ones. Third,

parties can value some potential coalition partners more than others. In other words, if we

think of one of the things that a governing coalition does as making (and then dividing) a

valuable pie, then we can conceive of parties preferring some flavors of pie to others. The

benefits that a party receives by participating in a given coalition derive from the similarity in

policy preferences and/or the complementarity of office preferences among coalition members.

So, for instance, a coalition containing parties with similar policy agendas is likely to generate

greater benefits for its members, all else constant, than would a coalition of parties with

conflicting policy agendas. Equivalently, a coalition of parties with different preferences over


cabinet appointments can have greater value to its members than one in which all parties covet


the same portfolios.

Having just described the benefits that parties derive from governing, we now describe

an event that may lead the parties to cast these benefits aside. This event (represented by a poll

that credibly signals public opinion or a set of shared past experiences that informs electoral

expectations) provides all parties with information about what would happen to them if they


were to call an election. What this event reveals is b the expected utility of new elections


to party I (b is a measure of party i's post-election well-being).


For example, suppose that the first party cares only about its ability to form a single-

party majority government in period 2, while the second party cares only about the number of

period 2 seats it will control. We would then characterize the value of b as increasing only in


the first party's belief about the subjective probability that it will be able to form a single-party

majority government in period 2, given new elections. Similarly, we would characterize the

value of b as increasing only in the second party's expectation of the number of seats that it


will control in period 2 given new elections.

While elections can provide benefits, calling them can also impose several types of

costs, such as the forfeiture of the policy-making opportunities or rent-collection opportunities

made possible by holding valuable offices and those involved in election-related intra-party

≥ 0 represents

negotiation, campaigning and electioneering. For each party, we assume that E


party i’s election-related transaction and opportunity costs (i.e. the cost of achieving the

benefits, b , revealed by the event). We do not assume that these costs are the same for all


parties. Together, our assumptions about the event and election-related transaction costs imply

that party i expects a utility of b - Ei from new elections.


New elections, however, are not the parties' only possible response to the event. They

can also make new offers to each other (i.e., reshuffle portfolios within a government or

institute a new government without calling new elections). The consequence of an accepted

offer will be either a redistribution of power among members of the initial governing coalition

or the formation of a new governing coalition.

5 In effect, we assume that parties are goal-oriented without making a general (and controversial) assumption about

the extent to which parties are interested in patronage, policy outcomes or the prestige of holding office. Stated


We assume that making offers may involve a transaction cost. We represent such a cost


by assuming that an offering party must pay K . Our motivation for K is the party-specific

i i

costs of formulating an offer to redistribute power. These costs include the effort required to

obtain the approval of party members and constituents. Like electoral costs, these negotiation

costs may be different for different parties.

If no party is willing to make an offer that another is willing to accept, then there may be

a vote of confidence. The requirements for such a vote to occur are (1) that no offer is made

and accepted and (2) that a parliamentary majority wants such a vote. If the vote is held, and

parties controlling a majority of seats vote "no," then parliament is dissolved, new elections are

held, the game ends and party i's period 2 utility is b - E . If no elections are held, and no new

i i

coalition contracts offered and accepted, then the incumbent government survives intact.

Results Lupia and Strøm prove that dissolutions require a set of parties that collectively have a

parliamentary majority and, individually, each prefer new elections to continuing parliament as

it is. Moreover, each party that has the ability to be part of such a majority must also prefer the

anticipated consequences of new elections to the most favorable and acceptable offer for a

replacement cabinet that any other party can make (Lupia and Strøm 1995, Theorem 1).

This result, which comes from conceiving of coalition decisions as the product of

bargaining, amends widely held beliefs about election timing. Grofman and van Roozendaal

(1994: 158), for example, argue that "anticipation of future electoral gains may cause a certain

party or a group of parties to seek to bring down the cabinet at a moment when their anticipated

electoral success will be greatest," and hypothesize that "Parties terminate cabinets when they

expect electoral gains". Accounting for the role of bargaining in coalition politics reveals this

hypothesis as only partially correct. Indeed, a party with favorable electoral prospects will

also consider the option of extracting advantages through non-electoral means (e.g.,

bargaining with parties that have less favorable electoral prospects.). A replacement cabinet,

rather than new elections, is particularly likely if key members of the existing coalition have a

strong desire to avoid elections. Therefore, good electoral prospects for any particular party

are not sufficient to cause a parliamentary dissolution.

another way, we assume that the parties share convergent beliefs about the value of the gains from trade that can


The same logic (Lupia and Strøm 1995, Corollary 1) shows that dissolution is most

likely when there exist parties in the coalition that: (a) expect large benefits from an election;

(b) face small election-related transaction costs, (c) face large transaction costs for negotiating

non-electoral transfers of power, (d) derive little value from the seats they currently control and

(e) derive little value from the other coalitions they could enter.

The corollary is important as it suggests an interactive effect between time elapsed since

the last election and whether a specific event (such as a war) will end a government or

parliament. To see this effect, first note that most parliamentary democracies have

constitutionally mandated limits on the maximum length of a parliament's term - the

"constitutional interelection period" (King et. al. 1990). Before the time since the last election

reaches the limit, calling new elections is merely an option. When this limit is reached,

elections must be held.

If calling early elections means that parties sacrifice policy-making opportunities and

benefit-collection opportunities, then -- all else constant -- the benefits parties can expect from

maintaining the current agreement should decrease as the parliamentary term approaches its

limit. That is, all else constant, the value of sustaining the current coalition should be relatively

high early in a parliament's term, should decrease continually over that term, and should reach

its minimum when parties have no other choice but to hold an election. Parties must forfeit

currently held assets when an election is held. To the extent that a party derives value from

being part of a coalition or parliament, the fact that such assets may be lost through an election

means that, all else constant, a coalition's value to its members should decay as parliament

ages - converging to zero when there is no choice but to hold an election. Hence (following

the corollary), an event that does not cause dissolution early in a parliament's term could do so

later. In general, focusing on coalition decision making as a process of bargaining that

occurs in the shadow of public opinion reveals that the extent to which an event is

"critical" depends on the bargaining environment. For instance, if the transaction costs of

having an early election are high, then dissolution requires a large event. Thus, if these costs

decrease over time, then dissolution requires smaller events as a parliament ages.

be created by each possible coalescence. 29

Such conclusions run counter to the assumption of a constant hazard rate – a measure of

the relationship between a government’s likelihood of failure and its age -- in early models of

cabinet stability (Browne, et. al. 1986; Cioffi-Revilla 1984). Warwick and Easton (1992) and

Kaashoek (1993) have questioned this assumption in the past, showing little empirical support.

Moreover, Warwick (1992) finds impressive cross-national evidence that the hazard rate for

executive coalitions increases over time. This is consistent with what our model predicts (i.e.,

the corollary stated above). Indeed, since the original publication of our result, scholars have

used our model as the basis for more effective empirical analyses of coalition termination (e.g.,

Diermeier and Stevenson 1999.)

Similar logic affects several widely held claims about coalitions. For example, formal

theories of coalition formation in a three-party legislature predict that the governing coalition

will comprise the largest and smallest legislative parties (e.g., Austen-Smith and Banks 1988

and Baron 1991). Our approach reveals that these predictions are not robust to the introduction

of parties who look forward to the next coalition termination or election when they bargain. To

see why, notice that a necessary condition for the "largest-smallest" prediction is that the party

to whom an acceptable offer is made must control either the smallest or the largest number of

seats. Now consider the general case in which the largest party is in the position to make an

offer. All else constant, the offering party should prefer to coalesce with the more valuable

coalition partner (assuming that there is a difference). If all else is not constant, however, then

the offering party must consider the trade-off between the value of a coalition partner and the

share of portfolios and other benefits that it can retain. If the larger potential coalition partner

has a lower walk-away value than the smaller one (e.g., if the former is a virtual pariah) and is

willing to make a better deal, then the offering party could choose to coalesce with the larger of

the two remaining parties.

In sum, if an offer is made, it will be made to the party whose walk-away value is

lowest. Such behavior does not require the largest and smallest parties to coalesce. Instead,

an offer is made to the weakest party, where the weakest party is the one that faces the most

damaging combination of (1) bad electoral prospects, (2) high election-related transaction

costs, (3) high bargaining costs or discount rates, (4) low-value coalition alternatives, and, (5)

highly valued seats or coalition-related power (that must be forfeited as a result of coalition

termination or parliamentary dissolution). 30

This application of our theoretical framework provides one example of its usefulness.

More generally, we believe that significant advances can be made in the study of government

coalitions if we properly understand bargaining dynamics and the sources from which

bargaining power springs, such as uncertainty and transaction costs and their implications for

walk-away values. This is not, however, the only way forward. There are other ways to

interpret the lessons of bargaining models that stress the role of institutions without assuming

that transaction costs matter. Consider, for example, a recent conclusion offered by Diermeier

and Merlo (2000):

“[A]s Lupia and Strom (1995) we find that in equilibrium governments may terminate in

early elections and replacements. However, once we allow for efficient bargaining [zero

transaction costs] and reshuffles, the Lupia and Strom framework can no longer generate

early terminations. If a government commands a majority of seats -- the only case

considered by Lupia and Strom – reshuffles can always be used to capture any changes

in the bargaining environment within the current coalition. Once efficient bargaining is

not possible, however, as in the case of bargaining between the minority government

and the parties in its supporting coalition, governments may fall. …Contrary to Lupia

and Strom, changes in expected seat share (i.e. public opinion shocks) are not sufficient

for cabinet terminations, unless efficient reshuffles are restricted or transaction costs

are assumed.” (Diermeier and Merlo [pp. 14-15 in their draft, need pages from

published version] emphasis added).

We agree with their result. However, in the process of working with all of the other

authors in this book and bearing witness to the incredible range of data about coalition

governance that they have assembled, we have yet to encounter a real-world governmental

setting where we have felt assured that transaction costs are zero (or where the preconditions

for what Diermeier and Merlo call efficient bargaining come close to being met). Therefore, we

take the difference between our results (in Lupia and Strøm 1995) and Diermeier and Merlo’s

claim as evidence of the importance of transaction costs in explanations of coalition dynamics.

Diermeier and Merlo prove that assuming that such costs do not exist leads to quite different

predictions about coalition dynamics. The virtue of their approach lies in its elegance. Yet, we

believe there is a substantial price to be paid in verisimilitude, and that as a consequence, such a

“neo-classical” approach will be unable to capture many of the “dirtier” aspects of coalition

politics. 31

The later chapters of this book reveal substantial evidence of positive transaction costs

(e.g., failed or long formation attempts) in virtually every stage of a coalition’s life cycle. While

we endorse Diermeier and Merlo’s attempt to study government formation dynamics in a

systematic manner, we follow scholars such as Williamson by contending that as scholarly

attention to the role of bargaining in coalition governance grows, so does the importance of

integrating carefully considered theoretical and empirical treatments of transaction costs.

4. Conclusion

In this chapter, we offer and apply a framework for understanding coalition governance.

Its main premise is that at every stage of a coalition’s life cycle, coalition decisions are the

result of bargaining, where every bargaining outcome is the result not only of past bargains

that affect history, institutions, and members’ resources but also of the fact that bargaining

occurs in the shadow of citizen opinions and under the constant threat posed by political

rivals who want to replace them. This framework illuminates how factors such as walk-away

values, institutions, discount rates, and deadlines affect what coalitions do. It also clarifies how

uncertainty and opportunism affect the content of coalition agreements. Its main lesson is that if

you want to understand coalition governance, it is important to realize that bargaining occurs at

every state of a coalition’s life cycle and that the outcome of bargaining at any particular stage

depends on the results of previous bargains (which gives parties the resources they have at any

particular time) and the prospect of future bargains (which affects walk-away values and the

credibility of current agreements).

This framework is a basis for the empirical work that will be applied in subsequent

chapters. These hypotheses describe important decisions such as coalition formation, policy

making, and coalition termination. Throughout, these analyses correct the errors in beliefs such

as "size is power," "length of bargaining implies effectiveness of contract" and "external shocks

cause coalition terminations" and replace them with hypotheses that are more consistent with

bargaining dynamics.

We conclude this chapter by comparing our framework’s insights to those of previous

accounts. We hope that this comparison clarifies the benefits of conceiving of coalition


governance as a context where the role of bargaining, electoral connections, and the shadow of

the future are fundamental.

1. Exogenous contextual factors are not the whole story.

Those who engage in coalition politics are doubtlessly influenced by cultural or historical

factors unique to their country. But regardless of the flag that flies outside their windows, every

member of every governing coalition enjoys the benefits of governing only if they satisfy the

two requirements of coalition participation – making and maintaining agreements with partners

and pleasing voters. As a result, they must bargain with electoral connections and the shadow

of the future in their thoughts. Once the centrality of bargaining is recognized, it follows that if

a country-specific factor fails to affect the walk-away value of at least one potential coalition

member, then regardless of how important this factor is in other parts of public life, it will have

no bearing on coalescence. Of course, we suspect that country-specific factors and walk-away

values are often correlated and believe that careful empirical studies of the correspondence are

a fruitful avenue for future research.

2. Resource distributions among political actors are not the whole story.

Resources, such as control over parliamentary seats, are clearly critical in the bargaining that

precedes the making and breaking of coalitions. While having more resources rather less can be

beneficial in bargaining, having more votes or money than others is less useful when your

preferences are sufficiently different from those of potential coalition partners or if, for other

reasons, your walk-away value is not commensurate with your assets. Indeed, a wealthy, but

impatient, party can have a smaller walk-away value than a smaller, patient party.

3. Institutions are not the whole story.

Institutions clearly matter, but their effects depend on other factors. While institutions affect

how walk-away values are translated into coalition agreements and policy outcomes, non-

institutional variations in walk-away values are also critical to explaining coalition behavior.

4. Preferences affect, but do not completely determine, coalition behavior.

Preferences too are important in coalition bargaining, but they do not determine who gets what

in isolation. Walk-away values, which can be a function of preferences, are of fundamental


importance. If, for example, a party strongly favors a particular policy position, but lacks

bargaining leverage because its walk-away value is zero (e.g., its supporters will not allow it to

enter into other arrangements), then it may be ignored when coalition agreements are finally

made. Moreover, the idea that common interests imply happy and successful coalition partners

is a seductive one. After all, why shouldn't people with common interests join forces? The flaw

in this view comes from ignoring the costs of bargaining, particularly transaction costs. Even

parties that are ideologically proximate may need assurances about an uncertain future. If

manufacturing these assurances is sufficiently costly (e.g., if they require a restrictive coalition

agreement), then potential coalition partners may seek other coalition possibilities.

In short, a coalition's ability to accomplish anything requires that it come to an

agreement. Some policies, such as those required for economic and social development, require

longer government commitments if they are to be successful. Transaction cost economics

reminds us that accomplishing such objectives requires the ability to overcome problems caused

by opportunism and uncertainty over long periods of time. Coalitions must be able to write

agreements that protect these policies -- giving coalition partners incentives to choose to stick

with the agreement rather than making or accepting an offer to join a new governing coalition

that is unfriendly to the current government's policy commitments. In other words, coalitions

who recognize the centrality of bargaining, electoral connections, and the shadow of the future

are far more likely to succeed politically than parties who focus exclusively on any of the four

factors named above. Bargaining in the shadow of the future is the key to governance at every

stage in a coalition’s life cycle.

One important implication of these conclusions is that coalitions that expect to survive

over longer periods can accept more risk and expect higher returns from long-run policy

commitments. They expect higher returns even if a particular policy agenda can lead to bad

outcomes in the short run because their coalition planning makes them more likely to survive

until the return of better days. Coalitions that expect to survive will therefore have a greater

legislative range -- an ability to undertake agendas that more vulnerable coalitions cannot touch.

While coalition governments vary in ways that often seem inscrutable, it is imperative

that the dynamics of coalition governance be as transparent as possible. The point of this

chapter is to increase the extent of transparency. While paying attention to bargaining

dynamics is not the only way to explain coalition governance, it can be an effective way. It can


also be a productive way forward given that many previous studies of the topic ignore

bargaining entirely. Since party coalitions dominate parliamentary democracies, which in turn

rule about one-third of the world’s population, the potential payoff from greater transparency

which can come from recognizing the centrality of bargaining in such efforts, makes research

efforts like the ones that follow in this book extremely worthwhile.



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Materiale didattico per il corso di Politica comparata del prof. Marco Giuliani. Trattasi del saggio di Arthur Lupia dal titolo "Bargaining, Transaction Costs, and Coalition Governance" all'interno del quale sono analizzati i rapporti di coalizione fra i partiti politici di governo e si fornisce un modello teorico per interpretarne le evoluzioni.

Corso di laurea: Corso di laurea in scienze internazionali e istituzioni europee
Università: Milano - Unimi
A.A.: 2011-2012

I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher Atreyu di informazioni apprese con la frequenza delle lezioni di Politica comparata e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Milano - Unimi o del prof Giuliani Marco.

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