Two distinct proposals, A and B, are being debated in
Washington. Congress likes proposal A, and the president likes proposal B. The
proposals are not mutually exclusive; either or both or neither may become law.
Thus there are four possible outcomes, and the rankings of the two sides are as
follows, where a larger number represents a more favored outcome:
(a) The moves in the game are as follows. First, Congress
decides whether to pass a bill and whether the bill is to contain A or B or
both. Then the president decides whether to sign or veto the bill. Congress
does not have enough votes to override a veto. Draw a tree for this game and
find the rollback equilibrium.
(b) Now suppose the rules of the game are changed in only
one respect: the president is given the extra power of a line-item veto. Thus,
if Congress passes a bill containing both A and B, the president may choose not
only to sign or veto the bill as a whole, but also to veto just one of the two
items. Show the new tree and find the rollback equilibrium.
(c) Explain intuitively why the difference between the
two equilibria arises.