Transaction Costs and Coalition Stability under Majority Rule

Ronald N. Johnson and Gary Libecap

Economic Inquiry, 2003, vol. 41, issue 2, 193-207

Abstract: Government program allocations are more stable and more equally shared than theory predicts. Although various explanations have been offered, we emphasize the high transaction costs of political negotiations and coalition enforcement. Cycling predictions ignore the cost to politicians of repeatedly forming coalitions and neglect the opportunity costs of failed coalitions and the loss of related government programs that bring valuable constituent benefits. Because of these costs, Congress relies on coalitions larger than the minimum necessary to enact a program, adopts relatively egalitarian programmatic sharing rules, and resists efforts to change those allocations. To illustrate we analyze the Federal Highway Trust Fund. Copyright 2003, Oxford University Press.

Date: 2003
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