Essays on the political economy of resource allocation through democratic processes
Abstract
This dissertation seeks to provide a rational explanation of legislative decisions on distributive issues. The legislative process is modeled as a non-cooperative majority rule game with an external veto, and agenda independent equilibria are characterized for this game. Three separate essays apply the model to important areas of public policy. The first essay models Distributive Policy and shows that a Veto-Overriding coalition would form in every period if the game is finitely repeated, and the universal coalition will form if the game is infinitely repeated. Without assuming fiscal illusion, it is shown that the universal coalition may be inefficient, and an upper bound on the level of inefficiency is obtained. Empirical tests, based on federal expenditure data, support the theoretical predictions. The second essay studies distributive tax expenditures, which are tax benefits (exemptions, deductions, credits) provided to narrowly targeted groups. Equilibrium predictions are generated for a dynamic game played by forward-looking players. When all legislators do not have the same ex ante probability of being part of the winning coalition, the model predicts the existence of a tax expenditure cycle, with the universal coalition alternating with a minimum winning coalition. Empirical tests find the existence of cycles in distributive tax expenditures. A study of amendments to the tax code also supports the theoretical predictions. In the third essay, a noxious facility is modeled as sited by a legislature. We examine two regimes. The first has A Priori Guaranteed Compensation (APGC), the second does not, although compensation is allowed to emerge as part of the equilibrium. For each regime, equilibria are characterized under three institutions: legislative majority rule, host-site veto rule, and unrestricted veto rule. The APGC regime leads to efficient equilibria under all three institutions. Furthermore, a majority of legislators prefers the APGC regime, even when the majority does not benefit from a noxious facility. Thus, the sophisticated voting equivalent of the "metagame" (choice over regimes) produces efficiency. The results are applied to the Nuclear Waste Policy Act of 1982. It is argued that Congress adopted all the provisions identified for an equilibrium repository selection.
Subject Area
Political science|Economics
Recommended Citation
Ahmad, Miftah Ismail, "Essays on the political economy of resource allocation through democratic processes" (1990). Dissertations available from ProQuest. AAI9112531.
https://repository.upenn.edu/dissertations/AAI9112531