In this setting, it is natural to redirect the focus onto the institutions governing policy formation. Such institutions determine which control rights are associated with which political office, and hence lay out the rules for legislative bargaining among politicians. We ask how these rules—the political regime—resolve the conflicts between voters and politicians, contrasting presidential and parliamentary regimes, drawing on results by Persson, Roland and Tabellini (1998a and b). That analysis, in turn, builds on several strands of earlier work. As in Barro (1973) and Ferejohn (1986), voters limit the agency problems associated with rent-seeking politicians by holding them accountable through retrospective voting. As in Persson, Roland and Tabellini (1997), the rules for separation of proposal (and veto) powers shape the conflicts between different politicians. And as in Diermeier and Feddersen (1998), the rules for executive formation and dissolution shape the coalition formation within the political system.
We consider a majoritarian electoral system throughout. As in Section 3.3, there are three equally-sized districts. Each of them elects a single politician. We now assume a more strongly dominant group of voters in each district: in our earlier notation n*,fc > 2 for each group i in one of the districts k. The preferences of this dominant group determine the election result and we need not distinguish between districts and groups.
Policy choices are made by the three incumbent legislators in legislative bargaining, before elections take place. These politicians aim at maximizing the sum of current endogenous rents and expected future exogenous rents of office:
As previously, p* is the probability that politician i is re-elected, while R denotes the exogenous “ego-rents” associated with winning the election. Moreover, r* denotes the current endogenous rents of politician i. This adds an additional policy dimension, namely the allocation of total rents r among incumbent politicians and, accordingly, a conflict of interest among incumbent politicians. Note that r* is enjoyed irrespective of the election result, while R is conditional on winning the elections. Hence, there is an implicit intertemporal dimension: R refers to the future, while r* refers to the current period.14
We now abstract from ideological or personal attributes of different politicians. In each district, the incumbent legislator thus faces an opponent, who is identical in the eyes of the voters (the terms ± + aj appearing in (3.2) are dropped). Voters in each group coordinate on optimal retrospective voting strategies. Specifically, voters in district i choose optimally a reservation utility for re-electing the incumbent legislator. That is, they vote according to: payday loans az
While coordinating within the group, the voters do not cooperate across groups. Thus, the reservation utility chosen by group i is a best response to the reservation utility simultaneously chosen by group j = i. Moreover, we assume throughout that voters have full information and that they take the political power of their legislator into account when formulating their voting rule.
In this setting, the incumbent politicians have significant discretionary powers to claim rents for themselves. But given their objectives in (4.1), the voting rule (4.2) presents them with an intertemporal tradeoff; if the politicians extract too high rents today, they cannot satisfy the voters’ demands and must forego reelection and rents tomorrow. The incentive scheme inherent in this accountability mechanism is less effective, however, if the decisive politician has access to more revenue, as this increases the temptation to appropriate the revenue for his private agenda.