Gambling over Public Opinion

Deepal Basak, Joyee Deb

    Research output: Contribution to journalArticlepeer-review


    We consider bargaining environments in which public opinion provides leverage by making compromises costly. Two parties make initial demands, before knowing the public opinion. If deadlocked, they can bargain again after public opinion forms, but suffer reputation costs if they compromise, i.e., scale back their demands. We show that in equilibrium, parties may choose to make incompatible demands initially and gamble over public opinion even though one or both parties must bear a cost later. We characterize when deadlocks arise, and how this affects the welfare of the public in a representative two-party democracy compared to a direct democracy.

    Original languageEnglish (US)
    Pages (from-to)3492-3521
    Number of pages30
    JournalAmerican Economic Review
    Issue number11
    StatePublished - Nov 2020

    ASJC Scopus subject areas

    • Economics and Econometrics


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