Policy Preferences in Coalition Formation and the Stability of Minority and Surplus Governments

In parliamentary democracies, political parties bargain over cabinet portfolios when forming coalition governments. While most of the theoretical literature predicts that only minimal winning coalitions form in equilibrium, the empirical evidence shows that minority and surplus coalitions are about as frequent. In this article, I bridge the gap between the theoretical predictions and the empirical evidence by developing a noncooperative bargaining model in which parties are both office seeking and policy pursuing. Parties bargain over cabinet portfolios, which in turn determines the government policy. Parties are farsighted, and when they coalesce with other parties, they take into account not only the expected cabinet portfolio allocation but also how this allocation would affect the government coalition policy. The model predicts in equilibrium the formation of minimal winning as well as minority and surplus coalitions as a function of a party's size, ideal policies, and relative preference for policy versus office.