Academic journal article Economic Inquiry

Transaction Costs and Coalition Stability under Majority Rule

Academic journal article Economic Inquiry

Transaction Costs and Coalition Stability under Majority Rule

Article excerpt

1. INTRODUCTION

Under a majority voting rule, representatives of specific political districts must bargain with representatives of other districts to build a coalition for enacting legislation that benefits their narrow constituencies. But the theoretical public choice literature warns of potential for unstable majorities. Minimum winning coalitions divide program benefits just among their members, creating incentives for those left out to entice defection by offering rewards to those who leave and form a different coalition. As noted in Mueller (1989) new coalitions emerge, undermining the old ones, leading to cyclical majorities, short-term programs, and highly skewed distributions of program benefits. (1) Despite these dire predictions, there is a general consensus in the literature [such as Tullock (1981)] that programs are more stable and allocations more equal than the theory suggests. (2)

In an effort to explain the discrepancy between prediction and observation, researchers have pointed to institutional rules and practices in Congress. For example, as stated in Shepsle and Weingast (1981a) and Weingast and Marshall (1988), the committee system provides a "structure-induced equilibrium" that limits the possible range of vote trading and thereby helps maintain coalitions. Further, Shepsle and Weingast (1981b), Miller and Oppenheimer (1982), and Collie (1988) argue that universalist sharing of program benefits enlarges the winning coalition and extends its political support. (3)

In this article we offer additional evidence of broad, stable sharing in many programs enacted by Congress by describing interstate distributions from the Federal Highway Trusts Fund (HTF). The allocation formula for the HTF was initiated in 1916, but despite wide divergence across the states in growth of various economic factors over the rest of the twentieth century (such as vehicle registration and population) that might have led to redirection of highway funds, there were comparatively limited HTF allocation adjustments. Analysis of state receipts from the HTF relative to tax payments into the fund reveals that some states collect much more than they contribute, whereas others pay in more than they receive. Even so, interstate ratios of HTF apportionments to payments have remained stable across the years, varying less than changes in highway use measures would suggest. Going beyond this specific program, we examine overall federal expenditure and tax shares among the states from 1975 to 1997 and show that there has been a similar continuity in the interstate distribution of federal funds and taxes. (4) As with the highway program, there is broad, stable sharing of federal expenditures across the states, with some receiving more than they contribute in taxes to the federal government.

To better understand this observed stability and use of relatively egalitarian sharing rules and to go beyond existing explanations, we emphasize the desire of politicians to minimize the high transaction costs of negotiating and enforcing political coalitions. Politicians have incentive to prevent unraveling of political agreements to avoid the costs of searching for new coalition partners, reaching agreement on the nature and distribution of program benefits and costs, and verifying compliance. These activities detract from a legislator's ability to address other voter concerns. Moreover, legislators seek to protect constituent benefits accruing from long-term programs that would be lost if coalitions unraveled. (5) Accordingly, we argue that politicians assemble greater than minimum-sized coalitions to build broad political support for their legislative programs, offering benefits to a larger constituency in exchange for additional votes. Considerable negotiation over the distribution of program benefits a nd costs may be required, so that once agreements are reached, politicians will be loath to consider a major reallocation that could undermine the coalition. …

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