Dynamic Legislative Bargaining with Veto Power∗

Many assemblies grant one or more of their members the right to block decisions even when a proposal has secured the necessary majority—a veto right. In this paper, I analyze the consequences of veto power in an infinitely repeated divide-the-dollar bargaining game with an endogenous status quo policy. The division of the dollar among legislators is unchanged until the committee agrees on a new allocation, which becomes the new status quo. In each period, a committee member is randomly recognized to propose a new division of the dollar. If a majority that includes the veto player prefers this proposal, it is implemented; otherwise, the dollar is divided according to the previous period’s allocation. I show that a Markov equilibrium of this dynamic game exists, and that, irrespective of the discount factor of legislators, their recognition probabilities, and the initial division of the dollar, policy eventually gets arbitrarily close to full appropriation of the dollar by the veto player. Finally, I analyze some measures to reduce the excessive power of the veto player: reducing his or her recognition probability, expanding the committee by increasing the number of veto players, and changing the identity of the veto player in each bargaining round. JEL Classifications: C72, C73, C78, D71, D72, D78