Reelection and Renegotiation Equation (10)at the time of the domestic election is atively hostile domestic party is therefore zero.17 Since the payoff gain Equation (9)is strictly positive,a voter whose project valuation is equidistant from the two parties strictly prefers to support the Pr(vmed≤t(s2)）= (S2)-(ve-) 20 hostile party. Note that a voter's induced preferences over date- 学+p-s2-(-am） two governments differ from those of an agent who 11) 2a shares her project valuation.v.but chooses a date- two domestic government to maximize total expected The electoral consequences of a more favorable date- date-two surplus between that voter and FG.Such an two status quo s2 differ starkly for the friendly and agent would prefer the hostile government if and only hostile domestic parties.As s2 increases-for exam- if vs8 The reason for this divergence is that a ple,when the date-one domestic government extracts voter does not value total surplus,but rather her share a larger transfer in exchange for pursuing the project- of the surplus.This highlights a possible source of ineffi- the hostile party's electoral prospects fall,and the ciency in domestic election outcomes that are sensitive friendly party's electoral prospects rise.This is a key to a country's external negotiations. difference with Wolford(2012),who assumes that a do- Voters'induced preferences over date-two represen- mestic incumbent's re-election prospects rise with the tatives are manipulable by both date-one governments surplus it extracts from an FG in a pre-election ne- FG can manipulate a voter's tradeoffs via its initial of- gotiation.Our framework highlights that when initial fer,bi s1:more generous offers-if accepted-steer negotiation outcomes become the reversion point in voters toward the more project-friendly party.But DG future elections,voters'induced preferences may gen- can also manipulate voters'tradeoffs via its choice to erate the opposite relationship between an incum- accept or reject the offer,r(b)[0,1):rejecting an bent's negotiated share of the surplus from agreement 4号 offer bequeaths a worse status quo,steering voters to- and its reelection prospects. ward the more hostile party.How these concerns affect We earlier showed that when power transitions are the prospect of initial agreement,and the division of exogenous,total expected surplus is unaffected by the the surplus,will depend on the policy conflict between initial agreement.This is no longer true when date-one parties,between the parties and their electorate,and outcomes can alter electoral outcomes.To see why,rec- between all domestic agents and the FG.We now show ognize that from the perspective of the date-one bar- how these conflicts resolve. gaining parties,the expected date-two surplus derived Henceforth,we assume that the distribution of vot- from a status quo s2 is ers'project valuations has a unique median,vmed.The single-peaked structure of induced preferences then implies that the voter with this median valuation is de- Pr(umed≤i(s2)△(b,) cisive in an election:for any standing offer s2,the hos- +Pr(umed >i(s2))A(vp.) (12) tile party wins if and only ifd≤+(ur-s2)≡ (s2).We assume that,at date one,both the FG and where A(vp,vp)(defined in Equation (6))is the ex domestic parties are uncertain of the future median ante expected date-two surplus from the perspective of voter's project valuation: the date-one bargaining parties when DGi has project Assumption 4:The valuation vmed of the median voter valuation vp and DG2 has valuation v.Thus the is drawn from a uniform distribution on the interval relative total surplus from an agreement (versus no lve-a,ve +al,where (1)v -a and (2)v+ agreement)is a>+p-s1. (1-8)(vF +vp)+8(Pr(umed si(b1)) Uniform uncertainty is not essential for our results, but it facilitates tractable comparative statics (e.g.,on -Pr(umed≤i(s1))(△(vb,u)-△(vD,) v and a).There are many natural interpretations.For (13) example,the larger is a,the more uncertain are date- one negotiating parties about the preferences of the Lemma 2 highlights how the relative total surplus from domestic electorate.Conditions(1)and(2)imply that an agreement changes with the terms of the agreement, there is enough uncertainty about voter preferences depending on whether DG is relatively friendly or rel- that each party wins with positive probability given atively hostile any standing offer,s2E[s1,vF].The probability that the majority-preferred date-two government is the rel- Lemma 2.For any 8>0,the relative total surplus from an agreement with transfer b between the FG and the date-one domestic government is 17This follows from()(d=0. 18 Total expected date-two surplus between a voter with date-one (1)strictly increasing in b if DG is relatively /:sony project valuation and FG with valuation vF is maximized by setting friendly,with valuation v,and 6=业if and only if巴e+pu+F+)fa)d之户e+p)w+ (2)strictly decreasing in b if DG is relatively F+)f()da.which is equivalent tov hostile,with valuation v. 1025Reelection and Renegotiation Equation (10) at the time of the domestic election is zero. 17 Since the payoff gain Equation (9) is strictly positive, a voter whose project valuation is equidistant from the two parties strictly prefers to support the hostile party. Note that a voter’s induced preferences over date￾two governments differ from those of an agent who shares her project valuation, v, but chooses a date￾two domestic government to maximize total expected date-two surplus between that voter and FG. Such an agent would prefer the hostile government if and only if v ≤ v+v 2 . 18 The reason for this divergence is that a voter does not value total surplus, but rather her share of the surplus.This highlights a possible source of ineffi￾ciency in domestic election outcomes that are sensitive to a country’s external negotiations. Voters’ induced preferences over date-two represen￾tatives are manipulable by both date-one governments. FG can manipulate a voter’s tradeoffs via its initial of￾fer, b1 ≥ s1: more generous offers—if accepted—steer voters toward the more project-friendly party.But DG1 can also manipulate voters’ tradeoffs via its choice to accept or reject the offer, r1(b1) ∈ {0, 1}: rejecting an offer bequeaths a worse status quo, steering voters to￾ward the more hostile party. How these concerns affect the prospect of initial agreement, and the division of the surplus, will depend on the policy conflict between parties, between the parties and their electorate, and between all domestic agents and the FG.We now show how these conflicts resolve. Henceforth, we assume that the distribution of vot￾ers’ project valuations has a unique median, vmed. The single-peaked structure of induced preferences then implies that the voter with this median valuation is de￾cisive in an election: for any standing offer s2, the hos￾tile party wins if and only if vmed ≤ v+v 2 + (vF − s2 ) ≡ vˆ(s2 ). We assume that, at date one, both the FG and domestic parties are uncertain of the future median voter’s project valuation: Assumption 4: The valuation vmed of the median voter is drawn from a uniform distribution on the interval [ve − α, ve + α], where (1) ve − α < v+v 2 and (2) ve + α > v+v 2 + vF − s1. Uniform uncertainty is not essential for our results, but it facilitates tractable comparative statics (e.g., on ve and α). There are many natural interpretations. For example, the larger is α, the more uncertain are date￾one negotiating parties about the preferences of the domestic electorate. Conditions (1) and (2) imply that there is enough uncertainty about voter preferences that each party wins with positive probability given any standing offer, s2 ∈ [s1, vF]. The probability that the majority-preferred date-two government is the rel- 17 This follows from  −(v+vF ) −(v+vF ) ( v+v 2 + vF + λ)f(λ)dλ = 0. 18 Total expected date-two surplus between a voter with date-one project valuation v and FG with valuation vF is maximized by setting v2 D = v if and only if  σ −(v+vF )(v + vF + λ)f(λ)dλ ≥  σ −(v+vF )(v + vF + λ)f(λ)dλ, which is equivalent to v ≤ v+v 2 . atively hostile domestic party is therefore Pr(vmed ≤ vˆ(s2 )) = vˆ(s2 ) − (ve − α) 2α = v+v 2 + vF − s2 − (ve − α) 2α . (11) The electoral consequences of a more favorable date￾two status quo s2 differ starkly for the friendly and hostile domestic parties. As s2 increases—for exam￾ple, when the date-one domestic government extracts a larger transfer in exchange for pursuing the project— the hostile party’s electoral prospects fall, and the friendly party’s electoral prospects rise. This is a key difference with Wolford (2012), who assumesthat a do￾mestic incumbent’s re-election prospects rise with the surplus it extracts from an FG in a pre-election ne￾gotiation. Our framework highlights that when initial negotiation outcomes become the reversion point in future elections, voters’ induced preferences may gen￾erate the opposite relationship between an incum￾bent’s negotiated share of the surplus from agreement and its reelection prospects. We earlier showed that when power transitions are exogenous, total expected surplus is unaffected by the initial agreement. This is no longer true when date-one outcomes can alter electoral outcomes. To see why, rec￾ognize that from the perspective of the date-one bar￾gaining parties, the expected date-two surplus derived from a status quo s2 is Pr(vmed ≤ vˆ(s2 ))(v1 D, v) + Pr(vmed > vˆ(s2 ))(v1 D, v), (12) where (v1 D, v2 D) (defined in Equation (6)) is the ex ante expected date-two surplus from the perspective of the date-one bargaining parties when DG1 has project valuation v1 D and DG2 has valuation v2 D. Thus the relative total surplus from an agreement (versus no agreement) is (1 − δ)(vF + v1 D) + δ(Pr(vmed ≤ vˆ(b1 )) − Pr(vmed ≤ vˆ(s1 )))((v1 D, v) − (v1 D, v)). (13) Lemma 2 highlights how the relative total surplus from an agreement changes with the terms of the agreement, depending on whether DG1 is relatively friendly or rel￾atively hostile. Lemma 2. For any δ > 0, the relative total surplus from an agreement with transfer b1 between the FG and the date-one domestic government is (1) strictly increasing in b1 if DG1 is relatively friendly, with valuation v, and (2) strictly decreasing in b1 if DG1 is relatively hostile, with valuation v. 1025 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000400