Question

1. Two distinct proposals, A and B, are being debated in Washington. Congress likes A and the President likes B. One or the other could be adopted, or both could be adopted, or neither. Here are the preference rankings of each party for the four possibilities. The most preferred is “4” and the least is “1”, so you can use these numbers for the payoffs.

Outcome                     Congress   President

A becomes law                  4             1           

B becomes law                  1             4           

Both become law . 3             3

Neither becomes law 2             2

(a) Suppose the game is played this way: First Congress proposes one of the four options. Then the President either accepts it or vetoes it. Vetoing it means that the fourth option (Neither becomes law.) Assume Congress can’t override the veto. Draw the tree and find the rollback equilibrium.

(b) Suppose the game is played a different way. The President has the right of a “line-item veto.” This means one change in the rules: in case Congress proposes the third option (both A and B), the President can either veto the whole proposal and get “Neither Becomes Law” or can veto only A (so that “B becomes law”) or veto only B (so that “A Becomes Law”). Or he can accept it. In other words the “line item veto” gives him two new moves, in this case. Draw the tree and calculate the rollback equilibrium.

(c) Is the line item veto more likely to be favored by conservatives or liberals? State your opinion in a short sentence.

Answer 1

Answer)

There are two distinct proposals A and B being debated in Washington. The Congress likes proposal A while the President likes proposal B . Both the proposals are not mutually exclusive that means either or both or neither becomes a law. Thus, the major possibilities and outcomes are as follows :

  

Outcomes	Congress	President
A becomes law	4	1
B becomes law	1	4
Both A and B becomes law	3	3
Neither ( status quo prevails )	2	2

Now,

a) We present this sequential game in extensive form : Drawing a tree diagram we have

c) The reason of difference in situations in sub parts a and b is the president has more power so he is left with less payoff. The Congress using backward induction takes his new power into account and as a first mover that will leave with worse payoff as compared to situation a.

b) Now , the rules of game have changed and the President is given an added power of line - item veto.