Résumé

What institutional arrangements allow veto players to secure maximal welfare when all agree on both the need for and the direction of policy change? To answer this question, we conduct a mechanism design analysis. We focus on a system with two veto players, each with incomplete information about the other's policy preferences. We show that the unique welfare-maximizing mechanism is the mechanism that implements the preferred policy of the player whose ideal policy is closer to the status quo. We provide examples of institutional structures under which the unique equilibrium outcome of this two-player incomplete information game is the policy outcome implemented by this mechanism, and argue that our result can be used as a normative benchmark to assess the optimality of veto player institutions.

Codes JEL