Bargaining and Resource Allocation in Committees and Legislative Bodies: Theory and Experimental Evaluation

The University Archives has determined that this item is of continuing value to OSU's history.Allocation of scarce resources is a central activity of governments and a great number of international and national organizations, often creating conflict between different stakeholders in these organizations. Recent years have seen the development of game theoretic models designed to understand the bargaining process underlying these allocations, both in terms of their impact on economic efficiency and on the share of resources allocated to different stakeholders. Central to these models is the impact of institutional rules and relative bargaining power on the allocation of resources between competing factions. The present proposal is designed to fund experiments to investigate the predictions of these legislative bargaining models.Mershon Center for International Security StudiesProject summar

Randomization, Endogeneity and Laboratory Experiments

In conducting experiments with multiple trials, outcomes from previous trials can impact on current behavior. One of the most obvious cases in which this can happen, and the case considered in this paper, is in an auction market experiment, where earnings from previous auction trials alter cash balances which, in turn, can affect bidding behavior. (The most obvious mechanism for such a result, within standard theory, is if bidders are risk averse and do not have constant absolute risk aversion. One can imagine a number of non-standard reasons for such effects as well.) Use of OLS regressions with cash balances included as a right hand side variable are likely to lead to a biased estimate of the cash balance effect since the variation in cash balances is largely related to differences in bidding strategies across individuals. Fixed effect regressions can commonly control for these endogeniety problems at the potential cost of obtaining inefficient estimates, since this estimator does not exploit between-individual variation. This paper addresses this problem in two ways. First we consider an experimental design that reduces the potential bias of OLS estimates while increasing the precision of fixed effect estimates. Second, we consider instrumental variables estimation of the cash balance effect where the instruments are produced by the experimental design. To the best of our knowledge, neither of these approaches has been explored in the experimental literature.

Pork Versus Public Goods: An Experimental Study of Public Good Provision Within a Legislative Bargaining Framework

We experimentally investigate a legislative bargaining model with both public and particularistic goods. Consistent with the qualitative implications of the model: There is near exclusive public good provision in the pure public good region, in the pure private good region minimum winning coalitions sharing private goods predominate, and in the ‘mixed’ region proposers generally take some particularistic goods for themselves, allocating the remainder to public goods. As in past experiments, proposer ower is not nearly as strong as predicted, resulting in public good provision decreasing in the mixed region as its relative value increases, which is inconsistent with the theory.Legislative Bargaining, Public Goods, Efficiency

Bargaining in Legislatures: An Experimental Investigation of Open versus Closed Amendment Rules

We investigate the Baron and Ferejohn (1989) noncooperative game theoretic bargaining model of legislative equilibrium. Legislative outcomes are sensitive to formal rules specifying who may make proposals and how they will be voted on. With a random proposal recognition rule and a closed amendment rule (proposals are voted up or down with no room for amendments) the model predicts no delays in benefit allocation, that benefits will be allocated to a minimal winning coalition, and that benefits within the coalition will be strongly skewed in favor of the proposer. In contrast, with a random proposal recognition rule and an open amendment rule (proposals may be amended before they are voted on) the model predicts delays in benefit allocation, that benefits will be more evenly spread among winning coalition members, and that coalitions need not be restricted to a minimal majority. With experience we find strong qualitative support for the model's predictions: All proposals are passed without delay with the closed rule versus 81% of all proposals with the open rule. Minimal winning coalitions are effectively proposed in 67% of all cases with the closed rule versus 4% with the open rule, and benefits are more evenly distributed with open rule. Quantitative predictions of the model fail however: Most importantly, proposers consistently fail to allocate themselves anything close to what the theory predicts. Further, the probability of immediate acceptance is much higher than predicted in the open rule as proposers consistently expand the winning coalition beyond the model's prediction in attempts to limit amendments. The evolution of play over time is reported (outcomes under both treatments are much more similar early on then later). Tests show that subjects' votes in favor of a proposed allocation are significantly affected by their own share (in the expected direction) but that the distribution of shares across all voters has no significant effect.

Selection bias, demographic effects, and ability effects in common value auction experiments

We find clear demographic and ability effects on bidding in common value auctions: inexperienced women are much more susceptible to the winner's curse than men, controlling for SAT/ACT scores and college major; economics and business majors substantially overbid relative to other majors; and those with superior SAT/ACT scores are much less susceptible to the winner's curse, with the primary effect coming from those with below median scores doing worse, as opposed to those with very high scores doing substantially better, and with composite SAT/ACT score being a more reliable predictor than either math or verbal scores by themselves. There are strong selection effects in bid estimates for both inexperienced and experienced subjects that are not identified using standard econometric techniques but rather through our experimental design effects. Ignoring these selection effects is most misleading for inexperienced bidders, as the unbiased estimates of the bid function indicate much faster learning and adjustment to the winner's curse for individual bidders than do the biased estimate

Bidding in Common Value Auctions: How the Commercial Construction Industry Corrects for the Winner's Curse

Experienced construction industry executives suffer from a winner's curse in laboratory common- value auction markets. (Dyer et al. 1989). This paper identifies essential differences between field environments and the economic theory underlying the laboratory markets that account for the executives' success in the field and a winner's curse in the lab. These are (1) industry-specific mechanisms which enable contractors to escape the winner's curse even when they bid too low, (2) learned, industry-specific evaluative processes which enable experienced contractors to avoid the winner's curse in the first place, and (3) important private value elements that underlie bidding. Also identified are a number of industry-specific bidding characteristics whose evoluation can be explained using modern auction theory. Lessons are drawn regarding the use of experimental methods in economics.Auctions, construction industry, winner's curse, field data, experiments

Pork Versus Public Goods: An Experimental Study of Public Good Provision Within a Legislative Bargaining Framework

We experimentally investigate a legislative bargaining model with both public and particularistic goods. Consistent with the qualitative implications of the model: there is near exclusive public good provision in the pure public good region, in the pure private good region minimum winning coalitions sharing private goods predominate, and in the "mixed" region proposers generally take some particularistic goods for themselves, allocating the remainder to public goods. As in past experiments, proposer power is not nearly as strong as predicted, resulting in public good provision decreasing in the mixed region as its relative value increases, which is inconsistent with the theory

Asymmetric auctions with resale: An experimental study

We study auctions with resale based on Hafalir and Krishna's (2008) [6] model. As predicted, weak bidders bid more with resale than without, so that average auction prices tend to increase. When the equilibrium calls for weak types to bid higher than their values with resale they do, but not nearly as much as the theory predicts. In other treatments outcomes are much closer to the risk neutral Nash model's predictions. Bid distributions for weak and strong types are more similar with resale than without, in line with the theory