Pre - electoral Coalitions and Post - election Bargaining ∗

We study a game-theoretic model where three political parties (left, median and right) can form coalitions both before and after the election. Before the election, coalitions can commit to a seat-sharing arrangement, but not to a policy platform or a division of rents from office; coalition members are free to break up and join other coalitions after the election. Equilibrium pre-electoral coalitions are not necessarily made up of the most ideologically similar parties, and they form under proportional representation as well as plurality rule. They form not only to avoid splitting the vote, but also because seat-sharing arrangements will influence the post-election bargaining and coalition ∗ We thank Facundo Albornoz, Sophie Bade, Ralph Bailey, Somdutta Basu, Myeonghwan Cho, Jayasri Dutta, John Fender, Indridi Indridason, Saptarshi Ghosh, Bryan McCannon, and especially Sona Golder for valuable comments. We also thank two anonymous referees and the editors for many helpful comments. Chatterjee wishes to thank the Human Capital Foundation (www.hcfoundation.ru), and especially Andrey P. Vavilov, for support to The Pennsylvania State University’s Department of Economics. MS submitted 26 May 2011 ; final version received 3 July 2011 ISSN 1554-0626; DOI 10.1561/100.00010043 c © 2011 S. Bandyopadhyay, K. Chatterjee and T. Sjöström 2 Bandyopadhyay et al. formation. The median party’s share of the surplus in a two-party government is large if ideology is not very important, or if its ideological position is not very distant from the third (outside) party, so that it has a credible threat to switch coalition partners. On the other hand, if ideology is very important, and if the right and left parties are ideologically distant from each other so each is willing to give up a lot to prevent the other from joining a governing coalition, then the equilibrium outcome may be that the median party forms a one-party government. In parliamentary democracies, coalition governments are common, and single party majority governments are relatively rare. A study of 313 elections in 11 European democracies between 1945 and 1997 found that only 20 elections returned a single party with more than half of all seats in parliament (Gallagher et al. 1995, Diermeier and Merlo 2004, Strom et al. 2008: Chapter 1). But coalitions can form both ex ante (before elections) and ex post (after elections). There is a well developed literature on post-electoral coalition formation, but as noted by Powell (2000, p. 247), the literature on pre-electoral coalitions is quite small. Recent empirical work suggests that pre-electoral coalitions are important. In a study of 364 elections in 23 advanced parliamentary democracies between 1946 and 2002, Golder (2006a, b) found 240 instances of pre-electoral agreements.1 Carroll and Cox (2007) found that of the 144 parties participating in majority governments in their cross sectional data, 38 (26%) had engaged in public pre-election cooperation. Pre-electoral agreements are common in diverse countries such as France, South Korea and India. Debus (2009) offers empirical evidence that pre-electoral alliances have an impact on government formation. In this paper, we investigate theoretically how different electoral systems and post-election bargaining protocols influence the process of pre-electoral coalition formation. It has long been recognized that under plurality voting (PV), like-minded parties who compete against each other in the same electoral districts risk splitting the vote. In 1903, the U.K. Labour party and Liberal Democrats 1 Martin and Stevenson (2001) consider only a single data set and do not report the percentage of elections with pre-electoral coalitions (which is not the focus of their paper), but Golder (2006a, b) calculates that the percentage in their data set is 19%. She argues, however, that this is an underestimate. Pre-electoral Coalitions and Post-election Bargaining 3 formed the first Lib-Lab pact, in which they agreed not to compete against each other for 50 seats in parliament (Pugh, 2002, p. 117). Various forms of Lib-Lab arrangements persisted, mainly in local elections in Scotland and Wales, though attempts at national seat-sharing agreements have also been made.2 In India, which also has a PV electoral system, pre-election coalitions became widespread following the 1977 election, when the Indian National Congress lost its hold on power.3 Typically, these pre-electoral coalitions do not commit to form a coalition government, which will implement a specified set of policies. Instead, the main issue over which pre-electoral alliances in India bargain is which party will contest which seat. Under a system of proportional representation (PR) with national lists, as in Israel, each list gets a number of seats in parliament proportional to its vote share. If two parties stand on a joint list, and if each voter who supports either party votes for the joint list, then the joint list will get the same number of seats in parliament as the two parties would get by standing on separate lists. Thus, in this system, the problem of splitting the vote is moot, seemingly eliminating the rationale for ex ante agreements. But in reality, ex ante coalitions occur even with proportional representation. For example, 87% of the elections in Israel (which comes closest to pure PR) analyzed in Golder’s data set had at least one pre-electoral alliance. Similarly, joint lists have been seen in Greece, Portugal and (to a lesser extent) the Netherlands (Golder 2006a, b).4 Our theoretical model investigates the possible motives for such pre-electoral agreements. Most real-world PR systems are characterized by a combination of national list choice and district level elections. However, in order to understand the motives for ex ante coalitions, we will study a pure system of strictly proportional representation with national lists where the problem of splitting the vote is absent. Under this voting system, an ex ante coalition is simply an agreement to contest the election as a single national list. The ordering of candidates on the list will determine the parties’ number of seats in parliament. We also study a second voting system, plurality voting (PV), where 2 In contrast, the 2010 Conservative–Liberal Democrat coalition resulted from post-electoral negotiations. 3 See http://www.electionresults.in/history-political-parties.html for a brief history of how the Indian National Congress lost its hold on power. 4 Empirical estimates of the frequency of coalitions depend on the exact definition which is used. In our model, pre-electoral coalitions do not commit to forming a coalition government, or to any policy platform. Therefore, as a motivation for our work, the most permissive definition of pre-electoral coalition (and hence biggest number) seems the most relevant. 4 Bandyopadhyay et al. the electorate is divided into districts and each district elects a member of parliament. Under this voting system, an ex ante coalition is an agreement not to compete in certain districts. This may not be a complete seatsharing arrangement; there may be some seats in which both parties run for office.5 In our model there are three parties, L, M and R, with M ideologically closer to L than to R.6 The parties care about ideology, rents from office and seats in parliament. If ideologically distant parties form a coalition government, they may experience costs of ideological compromises. Therefore, an MR coalition government (consisting of the M and R parties) generates a smaller surplus than an LM government (consisting of L and M). For simplicity, we assume the L and R parties are so far apart ideologically that an LR coalition cannot generate any surplus. If a party is outside the government, it may suffer a negative externality from a government to which it is ideologically opposed. Ex ante coalitions determine the seat shares of the coalition partners, but they are free to split up after the election. If no party obtains a majority of the seats in parliament, then post-election bargaining determines which government forms, and how the rents from office are allocated. The timing is as follows. First, pre-electoral coalitions form. Then voting occurs (under PR or PV). Finally, post-election government formation takes place. This stark model explores the pure incentives for coalition formation, emphasizing the role of ex post bargaining and coalition formation, while abstracting from issues such as increasing returns to scale in campaign effort for ex ante coalitions. We consider two canonical ex post bargaining protocols. The random recognition protocol specifies that, in each period of bargaining, each party is recognized to propose a coalition with probability proportional to its number of seats in parliament. Similar protocols have been analyzed by Baron and Ferejohn (1989) and others. The ASB protocol (after Austen-Smith and Banks 1988) is deterministic: the largest party is recognized first, followed 5 For example, in 2001 in Assam (one of the states in India), the BJP and AGP parties agreed that the BJP would put up candidates for 44 seats, but 10 of these would be contested by both parties in so-called friendly contests (http://news.indiamart.com/newsanalysis/assembly-polls-congr-6008.html). 6 This simplification is made in order to pinpoint the tradeoffs and incentives for coalition formation. Many countries do have only three major parties, e.g., the U.K. (Labour, Conservative, Liberal Democrat) and Israel (Likud, Kadima, Labour). Pre-electoral Coalitions and Post-election Bargaining 5 by the second largest and so on.7 We characterize the stationary subgame perfect equilibria of the infinite horizon ex post bargaining games corresponding to the two protocols. With random recognition, the MR coalition government never forms. Equilibrium surplus shares within the LM coalition government are proportional to seat shares (Gamson’s Law) if M and R are ideologically very distant. However, M ’s surplus share is bounded below by the surplus an MR government would generate, so Gamson’s Law is violated if M and R are ideologically fairly close. With the ASB protocol, for some orders of recognition, the MR government forms if M and R are ideologically fairly close. There are three motives for ex ante coalition formation in our model: (a) to influence which government will form ex post; (b) to manipulate the bargaining power within the government; and (c) with plurality voting only, for similar parties to avoid splitting the vote. We emphasize (a) and (b), as (c) is well known (Golder, 2006a, b; Blais and Indridason, 2007). One way for motive (a) to come about is via an ex ante agreement which produces such a large vote share for M that it becomes a majority party. The junior ex ante coalition partner, say R, benefits from this seemingly one-sided agreement because it blocks its ideological opponent L from joining a coalition government. With ASB bargaining ex post, there is another way for (a) to happen: whether MR or LM forms ex post may depend on the order of recognition, and this can be influenced by transferring seats from one party to another. Motive (b) can come about via an ex ante agreement that transfers enough seats to change the ex post distribution of surplus, via the ex post bargaining protocol, without actually changing the governing coalition. Because of (a) and (b), ex ante agreements may be viable under PR. Also, because of these motives, under PV ideologically different parties (M and R) unconcerned about splitting the vote may still find a viable ex ante agreement. Thus, one of our main conclusions is that, in theory at least, ex ante coalitions are by no means motivated solely by the problem of splitting the vote. To close the model, we assume ex ante bargaining follows a random recognition protocol with a deadline given by the election. PartyM is the essential party which must be part of any coalition. The more rounds of bargaining ex ante, the better M can exploit this position, so its equilibrium payoff is 7 Diermeier and Merlo (2004) argue that there is greater empirical support for the random recognition protocol, yet this is questioned by Laver et al. (2010). Rather than take sides we consider both protocols. 6 Bandyopadhyay et al. increasing in the number of rounds. If ideology is not very important, or if M ’s ideological position is not very distant from that of R, then M has a credible outside option and will get a large share of the surplus in a coalition with L. On the other hand, ideological polarization means L and R are keen on excluding each other from the government. If these parties care much more about ideology than about seats in parliament then M benefits from the polarization; indeed, if there are many rounds of bargaining ex ante then M will be able to form a majority government and take all the rents from office. This and other predictions, suggesting some ideas for empirical work, are discussed in the conclusion. There is a large game theoretic literature on bargaining and coalition formation (e.g., Chatterjee et al. 1993; Okada 1996, 2007; Eraslan and Merlo, 2002). Nearly all coalition formation papers which allow externalities assume symmetric players (Ray, 2008). Our analysis of ex post legislative bargaining may be of independent interest, as we assume heterogeneous players and externalities, and we characterize and compare the stationary subgame perfect equilibria for different extensive forms. Our random recognition protocol does not require the game to be superadditive, and non-degenerate mixed strategies are necessarily used in equilibrium. From the political economy angle, we derive endogenous shares of the surplus based on the proportion of seats in the legislature. Our analysis of a finite horizon ex ante coalition formation game might also be of independent theoretical interest. Starting with Riker (1962), a large literature in political science discusses coalition formation in legislatures (e.g., Laver and Schofield, 1990; Roemer, 2001; Bandyopadhyay and Chatterjee, 2006). Riker considered the allocation of rents from office, and Axelrod (1970) added ideological motives. Austen-Smith and Banks (1988) provide a formal game-theoretic model of how the nature of coalitions (ex post) influence voting. Diermeier and Merlo (2000) and Baron and Diermeier (2001) study post-election coalitional diversity. Indridason (2003, 2005) empirically studies what factors affect the size and connectedness of coalitions and Bandyopadhyay and Oak (2004, 2008) develop a theoretical model. Golder (2006b) not only focuses on the empirical study of pre-electoral coalitions, but also presents a simple theoretical model. Our model differs from Golder’s in several ways. First, we model political competition explicitly: parties have a choice of coalition partners. In Golder’s model, the identity of the coalition partner is not a choice variable (the choice is only whether Pre-electoral Coalitions and Post-election Bargaining 7 to accept this partner or not). Second, we explicitly model the voting process. Third, Golder assumes pre-electoral coalitions make binding commitments on policy and rents fromoffice. In ourmodel, pre-electoral coalitions agree on seatsharing arrangements or joint lists, but can make no other commitments (on future policies, surplus-sharing or government formation). While there is no agreement in the literature about what parties can commit to, the perfect commitment assumption of the Downsian model (Downs, 1957) is often considered unrealistic. Citizen candidate models assume no commitment (Osborne and Slivinski, 1996; Besley and Coate, 1997). In dynamic models of legislative bargaining, current policies can influence future outcomes, which allows for a limited kind of commitment. Baron et al. (2011) explicitly model the dynamics of the electoral process. They rule out commitment to future actions such as government formation or policy choice. However, in their model, today’s policy becomes tomorrow’s status quo, and so will influence future outcomes. In our model, a different kind of partial commitment, namely ex ante seat-sharing arrangements or joint lists, is used to manipulate ex post outcomes. Baron et al. (2011) assume voters behave strategically, taking into account that today’s policy will become tomorrow’s status quo. Parties strategically choose today’s policy, taking into account that this will influence not only future legislative bargaining and policy outcomes, but also the behavior of the voters in the next election. In our basic model voting is sincere, and preelectoral agreements amount to directly manipulating the election outcome, which in turn will determine government formation and legislative bargaining power. This suggests that, if the voters’ interests are aligned with their party leaders, strategic coordination of voter behavior could replicate the outcome of pre-electoral seat sharing arrangements, but we show that this is not the case. In our model, seat sharing arrangements (or joint lists) are negotiated ex ante. Ex post, the parties negotiate a government and share the rents from office the government generates. These rents can be identified with ministries allocated among the coalition partners (Laver and Schofield, 1990; Laver and Shepsle, 1996). Seats in parliament are non-transferable ex post. Indeed, there are explicit laws or strong norms against seat-selling (or even floor-crossing) in almost all constitutional democracies. We also rule out the possibility that seats generate transferable benefits that can be traded for policy concessions or used to induce a majority party to share power. Indeed, 8 Bandyopadhyay et al. in most U.K. elections, for example, the party with a majority has formed a single party government. This was also the case in India until the 1980s, when a single party used to get a majority. Plainly, other parties did not have anything to offer the majority party that would make power sharing worthwhile. Indeed most empirical analyses of coalition formation implicitly assume this, by excluding all cases with a majority party from the analysis (e.g., Martin and Stevenson, 2001). Other transfers, such as direct cash payments, are also ruled out. In short, following Austen-Smith and Banks (1988), we assume the rents from office generated by the government is the only benefit that can be transferred ex post. In our model, if a party wins a majority then it will always form a single party government, implement its favorite policy and take all the rents from office generated by the government, because it has nothing to gain from power sharing.8 This seems consistent with the empirical evidence cited above. There is evidence that pre-electoral coalitions influence post-election government formation (Debus, 2009; Golder, 2006b). But pre-electoral alliances often break up, with former coalition partners not cooperating in forming a government, suggesting less than perfect commitment. For example, the Janata Party, a merger of various groups opposed to the Congress, won the national election in India in 1977. After a few years, the Janata Party split into its components, and these have since formed a number of pre-electoral coalitions. These coalitions are clearly not mergers; the parties consider themselves free to join different post-electoral coalitions.9 With perfect commitment, ex ante agreements would be akin to form a new party. Dhillon (2005) surveys the party formation literature. Morelli (2004) assumed new parties form by mergers involving binding commitments on policy and ex post cooperation.10 In our model, a pre-electoral coalition does not signify a merger where the parties give up their separate identities. 8 Notice that the outcome may not maximize the total payoff of the three parties, because of the externalities. 9 For example, The Hindu newspaper of May 15, 2009 reported that Nitish Kumar of the Janata Dal (United) party, a member of the pre-electoral alliance National Democratic Alliance, stated his conditions for supporting any coalition government, including one not formed by the National Democratic Alliance. Several members of the pre-electoral alliance Third Front also declared themselves ready to switch to other groupings after the election. 10 Other works on party formation includes Roemer (2001), Jackson and Moselle (2002), Snyder and Ting (2002), Levy (2004) and Osborne and Tourky (2002). Pech (2010) analyzes a scenario where binding pre-electoral agreements are possible, parties are policy motivated and voting is sincere. There is no coalitional bargaining and policy of a coalition government is simply a lottery over the ideal positions of its constituent parties. He shows that there is a unique stable set where the median party runs uncontested. Pre-electoral Coalitions and Post-election Bargaining 9 Instead, the parties remain independent and (as long as no party has its own majority) must bargain ex post to form a coalition government. In addition, unlike in Morelli (2004), our parties get utility not only from seats in parliament, but also from joining the government, and even from blocking ideologically distant parties from joining. The issue of maintaining separate identities versus mergers is also analyzed by Persson et al. (2007). Their parties (unlike ours) are opportunistic and represent specific constituencies and not ideological positions, and their focus is on comparing government spending under single party versus coalition governments. The rest of the paper proceeds as follows. After presenting the model, we characterize post-election bargaining equilibrium under the two protocols. We then turn to the issue of ex ante coalitions. Before concluding, we briefly discuss strategic voter coordination.