Delegation in Veto Bargaining

TL;DR

This paper analyzes optimal delegation mechanisms in veto bargaining settings with single-peaked preferences, showing that full delegation often maximizes welfare and reduces bargaining power, with implications for designing decision rules under uncertainty.

Contribution

It introduces a model of delegation without transfers in veto bargaining, characterizes when full or interval delegation is optimal, and extends analysis to stochastic mechanisms.

Findings

Full delegation often optimal, allowing vetoer to choose any action between status quo and proposal.

Vetoer typically obtains her ideal point, leading to Pareto efficiency despite asymmetric information.

Less discretion is granted when preferences are more likely aligned, contrasting with expertise-based delegation.

Abstract

A proposer requires the approval of a veto player to change a status quo. Preferences are single peaked. Proposer is uncertain about Vetoer's ideal point. We study Proposer's optimal mechanism without transfers. Vetoer is given a menu, or a delegation set, to choose from. The optimal delegation set balances the extent of Proposer's compromise with the risk of a veto. Under reasonable conditions, "full delegation" is optimal: Vetoer can choose any action between the status quo and Proposer's ideal action. This outcome largely nullifies Proposer's bargaining power; Vetoer frequently obtains her ideal point, and there is Pareto efficiency despite asymmetric information. More generally, we identify when "interval delegation" is optimal. Optimal interval delegation can be a Pareto improvement over cheap talk. We derive comparative statics. Vetoer receives less discretion when preferences are more likely to be aligned, by contrast to expertise-based delegation. Methodologically, our analysis handles stochastic mechanisms.