ECONOMY

daniel diermeier 173
6 Non-cooperative Bargaining:The
Question of Cabinet Stability
.............................................................................
After having tackled the problem of government formation, non-cooperative models
were then applied to the issue of cabinet stability. A first connection was established
by Lupia and Strom (1995) who proposed a game-theoretic model of cabinet termination
by re-evaluating the key notion of “critical events” (Browne, Frendreis, and
Gleiber 1984, 1986, 1988). Lupia and Strom suggested that external events should be
interpreted as the input of a coalition bargaining process, representing each party’s
outside option if the current government falls. Whether a cabinet terminates depends
on the attractiveness of this outside option compared to each party’s payoff from the
current government.
This interpretation of the impact of random events marks a potentially important
shift in the study of cabinet terminations. Cabinets are interpreted as equilibria of
an underlying bargaining process that must be sustained over time as the political
environment and thus the distribution of bargaining power among governing parties
changes.
The long-term impact of the Lupia–Strom model was mainly conceptual. The actual
bargaining model is too simplistic to capture dynamics of coalition bargaining. 28
Their approach demonstrated that what is needed is a multistage bargaining approach
with an explicitly modeled stochastic process to capture the changing political environment
that may lead to critical events.
AfirststepinthisdirectionistheDiermeier–Merlomodel(DiermeierandMerlo
2000). As in Lupia and Strom, Diermeier and Merlo conceptualize coalition governments
as sustained equilibria in an underlying bargaining game. Bargaining is
assumed to be efficient proto-coalition bargaining, similar to Baron and Diermeier
(2001), but is now embedded in a multistage bargaining game with random shocks
both to electoral prospects and to the parties’ reservation values. Such shocks may
lead to the termination of government before the end of the game. In that case,
a new cabinet would take office. Cabinets may avoid termination by redistributing
(“reshuffle”) distributive benefits among the incumbent parties in response to
external events.
Government formation consists of two steps. First, a formateur is selected proportional
to seat share. Then that formateur chooses a proto-coalition which is assumed
to bargain efficiently. Any proto-coalition agreement needs to be approved by a
chamber majority.
Diermeier and Merlo are particularly interested in the study of minority government.
They identify a government with an allocation of cabinet portfolios: a
party that supports a minority government on critical votes but does not hold any
portfolios is not part of the government, but is only part of the supporting coalition.
Government policy is negotiated in the cabinet subject to majority approval
²⁸ See Diermeier and Stevenson 2000; Diermeier and Merlo 2000.