3. Two distinct proposals, A and B are being debated in Washington. Congress likes pro- posal A, and the President likes

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3 Two Distinct Proposals A And B Are Being Debated In Washington Congress Likes Pro Posal A And The President Likes 1 (50.68 KiB) Viewed 107 times

3. Two distinct proposals, A and B are being debated in Washington. Congress likes pro- posal A, and the President likes proposal B. The proposals are not mutually exclusive: either or both or neither may become law. Thus, there are 1 possible outcomes. Congress most prefers the outcome where only A becomes law (payoff 4), then where A and B both become law (payoff 3), then where neither becomes law (payoff 2), and its least-preferred outcome is where only B becomes law (payoff 1). The President most prefers the outcome where only B becomes law (payoff 4), then where A and B both become law (payoff 3), then where neither becomes law (payoff 2), and his least-preferred outcome is where only A becomes law (payoff 1). The sequence of moves is as follows. First, Congress chooses to pass neither proposal (which ends the game immediately), or pass just A or pass just B, or pass both A and B. If Congresses passes a bill, the President then chooses to sign the bill (in which case it becomes law) or to veto it (in which case it doesu't become law, assume that Congress does not have enough votes to override a veto) m (a) (10 points) Draw the game-tree for this sequential-move game and use backwards induction to find the subgame-perfect equilibria (SPE). For each SPE, what is the SPE outcome? () (10 points) Now suppose that the President has the extra power of a line-item veto. This means that if Congress passes both proposals, then in addition to the option of vetoing both of them, the President also has the option of vetoing just one of them (in which case only the not-vetoed proposal becomes law). Draw the new game-tree and use backwards induction to find the subgame-perfect equilibria (SPE). For each SPE, what is the SPE outcome? (c) (5 points) Is the President better off when he has the line-item veto, or when he doesn't have it? What about Congress? Explain why,