A Dynamic Theory of Collective Goods Programs

Abstract

A collective goods program, such as an entitlement program, distributes benefits and costs according to constituents' characteristics. This paper presents a dynamic theory of the legislative choice of collective goods programs based on a sequential model of proposal-making and voting in a majority-rule legislature where the status quo in a session is given by the program last enacted. A stationary Markov perfect equilibrium is characterized for a unidimensional collective goods 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 may act strategically to address 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 that future legislatures can make.