The politics of blame: Bargaining before an audience

An important class of bargaining problems involve two negotiations who send signals to a third party. We show that these signaling incentives signific antly influence (1) the proposals that they offer and (2) their decisions t o accept or reject proposals. Consider the following case: Congress makes a take-it-or-leave-it offer (a bill) to the president, who either signs or v etoes it. A third party is uniformed about the president's preferences; how ever by observing the bill that Congress writes and the president's veto de cisions, it can learn about these preferences. Since in our model the presi dent wants to appear moderate to voters, while Congress wants him to appear extreme, Congress sometimes writes a bill that it knows the president will veto. Thus, despite Congress and the president being completely informed, an uninformed third party causes the outcome to be Pareto inefficient. The model generates many empirical predictions, and we test one of these-that t he president's approval rating should drop after a veto.