The Dynamics of Parliamentary Bargaining and the Vote of Confidence

I develop a dynamic model of parliamentary policymaking in which three parties bargain over two-dimensional policies and transferable benefits. The model captures an important aspect of parliamentary systems: a failure of critical legislation leads to government dissolution. Policies are continuing, so the policy outcome in a period becomes the status quo for the next. I find a Markov perfect equilibrium in undominated strategies for sufficiently patient political parties. In the equilibrium, once a government forms, it is never dissolved. The policy dynamics under the consensus coalition and minimal winning coalitions exhibit strong persistence and Pareto-efficiency among governmental parties. By contrast, under minority governments, the policy outcome oscillates between two points that do not belong to the Pareto set. In the government formation processes, only minimal winning coalitions are formed with positive probability, and a party that is disadvantaged by the status quo policy is likely to be included in the government.