Legislative Bargaining with Veto Power,” mimeo

I analyze the consequences of veto power in an infinitely repeated divide-the-dollar bargaining game with an endogenous status quo policy. The division of the dollar among legislators is unchanged until the committee agrees on a new allocation, which becomes the new status quo. I show that a Markov equilibrium of this dynamic game exists, and that, irrespective of the discount factor of legislators and the initial division of the dollar, policy eventually gets arbitrarily close to full appropriation by the veto player. Convergence to this long run outcome takes an infinite number of bargaining periods and is slower in more patient committees. Introducing competition in the use of veto power does not prevent the complete expropriation of non-veto players. The main predictions of the theory find support in the behavior of committees in controlled laboratory experiments, which have important advantages over field data when studying a highly structured dynamic environment