The Politics of Compromise

Alessandro Bonatti and Heikki Rantakari

American Economic Review

2015

An organization must select among competing projects that differ with respect to the payoff consequences for its members. Each agent chooses a project and exerts costly effort affecting its random completion time. When one or more projects are complete, the agents select which one to adopt. The selection rule for multiple projects that maximizes ex post welfare leads to an ineffi ciently high amount of polarization, rules that favor later proposals can improve upon ex post optimal selections. The optimal degree of favoritism for later proposals increases in the agents' cost of effort and discount rate. These trade-offs inform the design of process rules in standard-setting organizations and help explain their performance.

Noncooperative Games, Social Choice, Clubs, Committees, Associations, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness

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