A Democratic president and a Republican Congress are at odds over two pieces of legislation. One is a welfare bill and the other is a farm subsidy. Congress loves the subsidy and hates the welfare bill; the president loves the welfare bill and hates the subsidy. Congress must originate any legislation, after which the president can decide to veto the bill; Congress will be unable to overturn any veto.
Congress is considering whether to propose the subsidy or the welfare program, or join both into one bill. Congress gets a payoff of 4 if the subsidy passes, 3 if the omnibus bill passes, 2 if nothing passes, and 1 if the welfare bill passes. The president gets a payoff of 4 if the welfare bill passes, 3 if the omnibus bill passes, 2 if neither passes, and 1 if the subsidy passes.
a. Draw the extensive form of this game, with Congress proposing legislation first, and the president either signing or vetoing that legislation second.
b. Solve for the equilibrium outcome of this game.
c. Suppose that the president has the power of a line-item veto: In other words, he or she can veto a portion of a bill, while allowing other parts to pass into law. Draw the extensive form of this modified game and solve for the equilibrium outcome.
d. Are the equilibrium outcomes the same in both cases? Explain why or why not.
e. Has the power of the line-item veto been useful for the president in this case?