Peter Buisseret and Dan Bernhardt the prospect of leader turnover raises (Gartzke and identity of the political party that holds power.We Gleditsch 2004)or reduces (Leeds,Mattes,and Vogel consider a two-party setting that features a relatively 2009;Gaubatz 1996;Leeds and Savun 2007)a govern- friendly party with date-one valuation 7,and a rela- ment's propensity to renegotiate or exit agreements. tively hostile party with date-one valuation v.These Others hold intermediate views.closer to ours.that the project valuations can be interpreted as flow payoffs degree of commitment is endogenous to the form of enjoyed at each date from the moment that the agree- the initial agreement(Lipson 1991;Abbott and Snidal ment is signed.If the project is not undertaken at date 1998:Rosendorff and Milner 2001).The empirical fre t,each agent receives a date-t payoff that we normalize quency and causes of treaty renegotiation have been to zero.All project valuations are common knowledge. subject to debate (e.g.,Downs,Rocke,and Barsoom Assumption 1 sets out the structure that the FG de- op//s 1996).We provide insights into how and when durable rives a higher value from the project than the relatively treaties are signed,and how this depends on the pref- friendly government,which,in turn,derives a higher erences of negotiating governments and the domestic value from the project than the relatively hostile party. political context. The idea that today's policies commit future Assumption1:vF>元>u. governments-and that such commitments can be All agents weight date-one payoffs by 1-8(0,1) used to manipulate electoral preferences-is well es- and date-two payoffs by 8.For example,1 -8 could tablished,for example in Alesina and Tabellini (1990), represent the time between the initial signing and the Milesi-Ferretti and Spolaore (1994),and Persson next election:when 8 is large,negotiations take place and Svensson (1989).In our setting,however,the relatively close to the election,after which there will degree of commitment itself is entirely endogenous.In be an opportunity to renegotiate the initial agreement. particular,initial negotiation outcomes change neither At the outset of negotiations,participation by DG the technology available to future governments, in the project with FG implies a transfer sER from nor their primitive valuation from post-election FG to DG1.In the EU accession example,s1>0 could 4号元 participation in the project.Finally,we contribute to represent a standard package of benefits,such as tariff a literature on dynamic political economy in which reductions or a share of regional development funds today's policy outcome serves as the reversion in that is awarded to a new member state upon joining.By subsequent negotiations (Dziuda and Loeper 2016: contrast,s1<0 could reflect formula-based budgetary Acemoglu,Egorov,and Sonin 2014). contributions made by the domestic government in The outline of this paper is as follows.We present exchange for its participation in the project.Alterna- our base model,analyzing a setting in which the un- tively,it could reflect monetary or fiscal convergence certainty over who will hold future domestic political criteria that DG must satisfy to accede,such as the power does not hinge on the initial negotiation be- Stability and Growth Pact.The precise value of s1- tween the foreign and domestic government.We then and whether it is positive or negative-does not play 是 consider endogenous elections,showing how the an- a role in our results.We focus on the most interesting swers to our motivating questions change radically.We setting,in which neither the relatively friendly nor rel- show how offers vary with primitives such as the in- atively hostile party derives a positive date-one value trinsic valuations that the domestic parties place on from entering into an agreement on these terms,but the project,as well as uncertainty about voters'pref- the FG derives a strictly positive date-one value from erences.We then summarize extensions that are fully the project taking place at the initial terms: analyzed in the Supplemental Appendix.A conclusion follows.Proofs are in the Appendix. Assumption 2:+s<0,Ur-s>0. We allow for negotiations between the countries in which FG encourages DGr to participate by offering MODEL more favorable terms.These negotiations unfold as fol- lows.At date one,FG is the proposer,and DGi is the Our two-date economy features two countries,a for- receiver.1 FG makes an initial offer b>s1,which is eign government (FG),and a date-t domestic govern- ment(DG,).FG can be interpreted either as an indi- a concession that it will give to DGi if and only if it participates in the agreement at that date.12 In the EU vidual government or a group of governments such as accession example,bi could represent additional con- the European Union,or an international organization cessions and carveouts on labor market or financial such as the International Monetary Fund.There is a sector regulations,budget contributions,or a more gen- project that the governments can undertake at each of erous share of regional development funds.After re- dates one and two;r,=1 indicates that the project is ceiving the offer b1,DGI chooses ri(b1)E(0,1),where undertaken at date t,and r=0 indicates that it is not. The project could represent the domestic country's ac- cession to an international organization such as the EU In the Supplemental Appendix,we show that our results extend the launch of a common currency,a climate agreement, or a region's participation in a federation or national prooinore generous union. terms than s1.This restriction is without loss of generality under many mild restrictions,for example that s+o +y is not too large At both dates,the project generates a value vF for and the likelihood that the median domestic voter places a very high FG.The value of the project to DG:depends on the value on the project is not too high. 1020Peter Buisseret and Dan Bernhardt the prospect of leader turnover raises (Gartzke and Gleditsch 2004) or reduces (Leeds, Mattes, and Vogel 2009; Gaubatz 1996; Leeds and Savun 2007) a govern￾ment’s propensity to renegotiate or exit agreements. Others hold intermediate views, closer to ours, that the degree of commitment is endogenous to the form of the initial agreement (Lipson 1991; Abbott and Snidal 1998; Rosendorff and Milner 2001). The empirical fre￾quency and causes of treaty renegotiation have been subject to debate (e.g., Downs, Rocke, and Barsoom 1996). We provide insights into how and when durable treaties are signed, and how this depends on the pref￾erences of negotiating governments and the domestic political context. The idea that today’s policies commit future governments—and that such commitments can be used to manipulate electoral preferences—is well es￾tablished, for example in Alesina and Tabellini (1990), Milesi-Ferretti and Spolaore (1994), and Persson and Svensson (1989). In our setting, however, the degree of commitment itself is entirely endogenous. In particular, initial negotiation outcomes change neither the technology available to future governments, nor their primitive valuation from post-election participation in the project. Finally, we contribute to a literature on dynamic political economy in which today’s policy outcome serves as the reversion in subsequent negotiations (Dziuda and Loeper 2016; Acemoglu, Egorov, and Sonin 2014). The outline of this paper is as follows. We present our base model, analyzing a setting in which the un￾certainty over who will hold future domestic political power does not hinge on the initial negotiation be￾tween the foreign and domestic government. We then consider endogenous elections, showing how the an￾swers to our motivating questions change radically. We show how offers vary with primitives such as the in￾trinsic valuations that the domestic parties place on the project, as well as uncertainty about voters’ pref￾erences. We then summarize extensions that are fully analyzed in the Supplemental Appendix. A conclusion follows. Proofs are in the Appendix. MODEL Our two-date economy features two countries, a for￾eign government (FG), and a date-t domestic govern￾ment (DGt). FG can be interpreted either as an indi￾vidual government or a group of governments such as the European Union, or an international organization such as the International Monetary Fund. There is a project that the governments can undertake at each of dates one and two; rt = 1 indicates that the project is undertaken at date t, and rt = 0 indicates that it is not. The project could represent the domestic country’s ac￾cession to an international organization such as the EU, the launch of a common currency, a climate agreement, or a region’s participation in a federation or national union. At both dates, the project generates a value vF for FG. The value of the project to DGt depends on the identity of the political party that holds power. We consider a two-party setting that features a relatively friendly party with date-one valuation v, and a rela￾tively hostile party with date-one valuation v. These project valuations can be interpreted as flow payoffs enjoyed at each date from the moment that the agree￾ment is signed. If the project is not undertaken at date t, each agent receives a date-t payoff that we normalize to zero. All project valuations are common knowledge. Assumption 1 sets out the structure that the FG de￾rives a higher value from the project than the relatively friendly government, which, in turn, derives a higher value from the project than the relatively hostile party. Assumption 1: vF > v > v. All agents weight date-one payoffs by 1 − δ ∈ (0, 1) and date-two payoffs by δ. For example, 1 − δ could represent the time between the initial signing and the next election: when δ is large, negotiations take place relatively close to the election, after which there will be an opportunity to renegotiate the initial agreement. At the outset of negotiations, participation by DG1 in the project with FG implies a transfer s1 ∈ R from FG to DG1. In the EU accession example,s1 ≥ 0 could represent a standard package of benefits, such as tariff reductions or a share of regional development funds that is awarded to a new member state upon joining. By contrast, s1 < 0 could reflect formula-based budgetary contributions made by the domestic government in exchange for its participation in the project. Alterna￾tively, it could reflect monetary or fiscal convergence criteria that DG1 must satisfy to accede, such as the Stability and Growth Pact. The precise value of s1— and whether it is positive or negative—does not play a role in our results. We focus on the most interesting setting, in which neither the relatively friendly nor rel￾atively hostile party derives a positive date-one value from entering into an agreement on these terms, but the FG derives a strictly positive date-one value from the project taking place at the initial terms: Assumption 2: v + s1 < 0, vF − s1 > 0. We allow for negotiations between the countries in which FG encourages DGt to participate by offering more favorable terms. These negotiations unfold as fol￾lows. At date one, FG is the proposer, and DG1 is the receiver. 11 FG makes an initial offer b1 ≥ s1, which is a concession that it will give to DG1 if and only if it participates in the agreement at that date.12 In the EU accession example, b1 could represent additional con￾cessions and carveouts on labor market or financial sector regulations, budget contributions, or a more gen￾erous share of regional development funds. After re￾ceiving the offer b1, DG1 chooses r1(b1) ∈ {0, 1}, where 11 In the Supplemental Appendix, we show that our results extend when DG1 is instead the proposer. 12 Throughout, we restrict FG to proposing weakly more generous terms than s1. This restriction is without loss of generality under many mild restrictions, for example that s1 + σ + v is not too large and the likelihood that the median domestic voter places a very high value on the project is not too high. 1020 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