Strategic Power Revisited

Traditional power indices ignore preferences and strategic interaction. Equilibrium analysis of particular non-cooperative decision procedures is unsuitable for normative analysis and assumes typically unavailable information. These points drive a lingering debate about the right approach to power analysis. A unified framework that works both sides of the street is developed here. It rests on a notion of a posteriori power which formalizes players' marginal impact to outcomes in cooperative and non-cooperative games, for strategic interaction and purely random behaviour. Taking expectations with respect to preferences, actions, and procedures then defines a meaningful a priori measure. Established indices turn out to be special cases.power indices, spatial voting, equilibrium analysis, decision procedures

The Inter-Institutional Distribution of Power in EU Codecision

This paper analyzes the a priori influence of the European Parliament (EP) and the Council of Ministers (CM) on legislation of the European Union adopted under its codecision procedure. In contrast to studies which use conventional power indices, both institutions are assumed to act strategically. Predicted bargaining outcomes of the crucial Conciliation stage of codecision are shown to be strongly biased towards the legislative status quo. Making symmetric preference assumptions for members of CM and EP, CM is on average much more conservative because of its internal qualified majority rule. This makes CM by an order of magnitude more influential than EP, in contrast to a seeming formal parity between the two ‘co-legislators’.power measurement, European Union codecision procedure, bargaining, spatial voting, decision procedures

Bargaining and Distribution of Power in the EU's Conciliation Committee

The European Union (EU) has moved towards bicameralism, making the codecision procedure its most important mechanism for decision making. To gauge if European Parliament (EP) and Council of Ministers (CM) are equally powerful ‘codecision makers’, understanding of the final stage of the procedure – bargaining in the Conciliation Committee – is crucial. Here, EP and CM are assumed to have spatial preferences determined by their respective internal decision mechanisms. Applying bargaining theory to predict inter-institutional agreements in the Conciliation Committee, it turns out that although institutionally the Council and the Parliament are seemingly in a symmetric position, CM has significantly greater influence on EU legislation.European Union codecision procedure, Conciliation Committee, bargaining, spatial voting, decision procedures

Fairness, Price Stickiness, and History Dependence in Decentralized Trade

The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very dierent reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.random matching; price stickiness; social preferences; history dependence; reference dependence

Static Costs vs. Dynamic Benefits of a Minimum Quality Standard under Cournot Competition

Imposing a minimum quality standard (MQS) is conventionally regarded as harmful if firms compete in quantities. This, however, ignores dynamic effects. We show that an MQS can hinder collusion, resulting in dynamic welfare gains that reduce and may even outweigh the usual static losses. Verdicts on MQS thus depend even more on the market at hand than has been acknowledged.minimal quality standard, Cournot competition, collusion

Fairness, Price Stickiness, and History Dependence in Decentralized Trade

The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very dierent reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.random matching, price stickiness, social preferences, history dependence, reference dependence

Intergenerational Mobility and Macroeconomic History Dependence

That historical inequality can affect long run macroeconomic performance has been argued by a large literature on ‘endogenous inequality’ using models of indivisibilities in occupational choice, in the presence of borrowing constraints. These models are characterized by a continuum of steady states, and absence of mobility in any steady state. We augment such a model with heterogeneity in agents’ abilities in order to generate occupational mobility in steady state. Steady states with mobility are shown to be generically locally unique and finite in number. We provide forms of heterogeneity for which steady state is globally unique, and others where they are non-unique. Agent heterogeneity may also cause competitive equilibrium dynamics to fail to converge, but convergence can be restored in the presence of sufficient ‘inertia’ or occupation switching costs.Intergenerational mobility, occupational choice, human capital, borrowing constraints, inequality, history-dependence

The European Commission – Appointment, Preferences, and Institutional Relations

The paper analyzes the appointment of the European Commission as a strategic game between members of the European Parliament and the Council. The focal equilibrium results in Commissioners that duplicate the policy preferences of national Council representatives. Different internal decision rules still prevent the Commission from being a Council clone in aggregate. Rather, it is predicted a priori that Commission policies are on average more in accord with the aggregate position of the Parliament than that of the Council. This prediction is confirmed for a data set covering 66 dossiers with 162 controversial EU legislative proposals passed between 1999 and 2002.European Commission, investiture procedure, voting rules, Council of Ministers, European Parliament