Bargaining and signaling: Congress, trade and treaties

The theory of take-it-or-leave-it bargaining games with asymmetric information is developed to examine congressional supervision ("oversight") of federal agencies, the commercial policy administered by international trade-regulating authorities, and the effect of domestic politics on international trade negotiations. Chapters 1 and 2 consider a model of costly signaling in which a preliminary action is used to extract a compromise in equilibrium from certain types of receiver. The equilibria in the cheap talk game of chapter 3 characterize the constraints domestic politics places on international negotiators.In the game between a congressional committee and a federal agency (chapter 1), hearings signal the resoluteness of the committee--the likelihood the committee will expend the effort to overrule an agency. Two sequential equilibria exist: a pooling equilibrium, and a set of partial-pooling equilibria in which the receiver is able to distinguish among groups of senders. When the receiver sends its utility-maximizing offer, the sender vetoes with positive probability if a compromise offer is sent, it is assured of its acceptance. These results resemble patterns of oversight observed in Congress.In chapter 2, a game between a foreign exporter and the local regulating authority is presented. An endogenous Voluntary Export Restraint (VER) characterizes the sequential equilibrium as the alternative to a tariff or allowing free trade. Although tariffs generate revenue, the political costs of the tariff may induce the regulating agency to agree to the VER and obtain trade protection for the local industry. If the agency can credibly threaten to impose a severe restraining tariff, a voluntary undertaking by the foreign exporter to reduce its penetration into the local market is offered and accepted.The two-level cheap-talk game with multiple agenda-setters in chapter 3 considers international negotiations over tariffs. Domestic politics shapes the agreement and constrains the executive when the preferences of the executive and the endorser (an outside authority) are close, or when the legislature is optimistic about the executive, or the less appealing is the status quo (the outside option to all players) to congress.