Endogenous Public Policy

Abstract

The political economic game that we study fits representative democracies in which public policy is shaped by a two-tier government and the affected interest groups. In government there are two levels of decision making. Bureaucrats work out the details of the proposed public policy while elected politicians make the final decision on the approval or rejection of the proposed policy. Our stylized model thus captures the hierarchical nature of the decision-making process and the division of labor in government decision making between bureaucrats and politicians. It takes into account the significant role of the agenda setters as well as the important role of the actual decision makers, the politicians. The dichotomous nature of the decisions made by the politicians (approve or reject) and the dual nature of the public decision-making process that consists of certain proposals and uncertain approval of these proposals are also taken into account.