Principal investigator: Eduarda Miller de Figueiredo
Original title: Gambling over Public Opinion
Authors: Deepal Basak and Joyee Deb
Location of the Intervention: –
Sample Size:
Sector: Public sector
Primary Variable of Interest: –
Type of Intervention: Political Negotiation
Methodology: Game Theory
Summary
Public opinion is used as a tool for reliable compromise. However, in many political situations, it is only discovered after negotiations have begun. In this article, the authors examine negotiation environments with uncertain public opinion and costly compromise, and question when bargaining impasses arise and the welfare implications of these impasses. They demonstrate two exercises, one with no equilibrium and the other with a unique and symmetrical equilibrium. The authors conclude that the final policy may overreact to new information and adversely affect welfare.
- Policy Problem
In many negotiation situations, public opinion is used as a tool for a credible compromise. However, in many situations, public opinion is not truly known at the time the negotiation begins; it is only discovered later. For example, in the United States in 2012, just weeks before the impending fiscal cliff, many Republican politicians stood firm in their vote in favor of spending cuts. It was a credible stance since it was part of a promise to their own voters, so a possible retreat from this stance would mean a loss of credibility and a reputational cost that could negatively impact their chances of reelection.
Disagreement in bargaining, as an attempt by players to build a reputation for being tough in a scenario with asymmetric information on both sides, was explained by Abreu and Gul (2000) through what is called reputational bargaining. Fanning (2018) presents uncertainty in costs that is resolved at a future date, showing that if the probability of the type of commitment converges to zero, then disagreement may occur.
The aim of the article analyzed here was to examine negotiation environments with uncertain public opinion and costly compromise, and to question when bargaining impasses arise and the welfare implications of these impasses.
- Implementation and Evaluation Context
The authors studied a two-stage bilateral negotiation process in a two-party representative democracy (RD), where the environment has three main characteristics:
- It is interpreted as a two-party RD model, and therefore public opinion is one-dimensional. That is, greater support for one party implies less support for the other party.
- If either party abandons its initial bargaining position, it will incur a cost that depends on the fraction of the public that favored it. Therefore, a party with greater support is more difficult to get to make concessions.
- If a party retreats from its initial position, the cost it will face will depend on the extent of the concession. This reflects the idea that the public does not uniformly punish all concessions, because retreating on a large scale from an initial demand is more evident.
- Policy/Program Details
In representative democracy (RD), there are two parties. i (left) and j (right) who are negotiating how to allocate $1 billion between military spending and education. The party i wants to spend all the money on education, while j wants to spend all the money on the armed forces. When the state of the world, as defined here by It's positive, so there's a low threat of war.
At the start of the game, both sides simultaneously publish their demands. When the sides reach an impasse, the game moves to the next phase and the state of the world (This is observed. Studies are commissioned by independent agencies, and as the reports from these studies are published, everyone becomes aware of the threat of war. Consequently, public opinion is formed on which party position is best; that is, each voter decides which party to support.
After gauging public opinion, the parties return to negotiations to see who will concede. This phase unfolds like a game of alternating offers. , Rubinstein (1982), with frequent offers:
- One of the parties is chosen at random to make the first concession.
- If the other party accepts this demand, an agreement is reached and the game ends. Otherwise, it continues to the next round.
- In the next round, the other party makes the demand, and the same process continues until an agreement is reached.
It is important to emphasize that parties suffer reputational costs if they make concessions, which depends on the size of the concession and public opinion. A larger concession is more evident to the public and is more likely to affect the credibility of one of the parties. Therefore, it leads to greater public support for the party. iThis makes the party more willing to wait.
In the standard bargaining equilibrium of alternating offers, the party that is more willing to wait has an advantage. Thus, in equilibrium, the party i needs to receive a larger share.
- Assessment Method
Based on the demonstration of how a negotiation would take place, the authors present a simple example to illustrate the theory described earlier. They demonstrate that there is no settlement equilibrium, and explicitly characterize the equilibrium of a unique symmetric pure strategy game.
- Main results
Given that ideal points and the state of the world are evenly distributed, the distribution of public support is not necessarily even. empty what was discussed previously.
Given the initial demands and the distribution of public support to the parties, when one party makes a greater demand than the other, the party i It obtains zero public support with a positive probability and can never obtain full political support. Therefore, there is no equilibrium.
However, when the parties demand more than It is known that a higher initial demand implies a greater magnitude of concession. As the cost of the commitment increases with the extent of the concession, two effects occur:
- Higher demand gives the player more leverage, thus increasing what they gain in the second stage of bargaining. It also increases the perceived cost of the commitment.
- Higher initial demand means the party will ultimately receive less public support, reducing its leverage.
From this, there will be a unique symmetrical pure strategy game equilibrium.
Finally, the authors also point out that when negotiations move to the second stage, one or both parties have to compromise after public opinion is revealed, and must bear the associated costs of compromise. However, according to the authors, this cost of compromise incurred by the parties may not be a significant reason to worry about the disagreement. In fact, for them, a byproduct of the impasse between the two stakeholders is that the final agreement depends on new information that emerges about the suitability of competing alternatives. The final policy choice may result in greater public welfare than the agreement in the first stage because it responds to this new information.
- Lessons in Public Policy
The authors demonstrate in the article that, in political negotiation, public opinion is used as a credible compromise tool. In this context, when parties are unsure of public opinion when they begin bargaining, then under a broad range of conditions, they prefer to gamble on public opinion. That is, they make incompatible demands and wait to see how public opinion moves before making a compromise.
They point out that it is possible to conjecture that this improves public welfare compared to a case where this information is not incorporated. However, they demonstrate that this is not true. And final policy may overreact to the new information and adversely affect welfare.
References
Abreu, Dilip and Faruk Gul. 2000. “Bargaining and Reputation”. Econometrica 68 (1): 85-117.
Fanning, Jack. 2018. “No Compromise: Uncertain Costs in Reputational Bargaining.” Journal of Economic Theory 175 (May): 518-55.
Rubinstein, Ariel. 1982. “Perfect Equilibrium in a Bargaining Model.” Econometrica 50 (1): 97-109.
