On dynamic compromise

What prevents majorities from extracting surplus from minorities in legislatures? We study an infinite horizon game where a legislative body votes to determine distributive policy each period. Proposals accepted by a simple majority are implemented, otherwise the status quo allocation prevails. We construct symmetric Markov perfect equilibria that exhibit compromise in the following sense: if the initial status quo allocation is “not too unequal”, then the Markov process is absorbed into allocations in which more than a minimum winning majority receives a positive share of the social surplus. The compromise is only sustainable if, starting from the “unequal” allocations, the Markov process is absorbed into allocations in which there is a complete absence of compromise. These compromise equilibria exist when discounting is neither too small nor too large. We find that, contrary to intuition, the range of discount factors for which these equilibria exist increases as the number of legislators increases. In this sense, compromise is easier in larger legislatures. JEL Classification: C73, D74