A Dynamic Theory of Collective Goods Programs

A Dynamic Theory of Collective Goods Programs

1994Working Paper No. 1312

A collective goods program, such as an entitlement program distributes benefits and costs according to constutents' characteristics, and many such programs are outside the appropriations process and continue in effect until changed by future legislation. This paper presents a dynamic theory of the legislative choice of collective goods programs based on a sequential model representing proposal-making and voting in a majority-rule legislature where the status quo for a session is given by the program last enacted. A stationary Markov perfect equilibrium is characterized for a unidimensional collectivegoods program and yields a generalized median voter theorem, comparative statics on preferences and legislative procedures, and a characterization of the dynamics of such programs. Equilibrium programs can expand or contract over time, but they ultimately converge to the median. On the path to that point, legislators ct strategically to addess the durability problem-that a future legislature can undo the actions of the present legislature-by strategically positioning the status quo to limit the changes tht future legislatures can make. Multidimensional collective goods programs are also considered, and properties of their equilibria are discussed.