Endogenous choice of electoral rules in a multi-party system with two dominant parties

We develop a model of endogenous choice of electoral rules in a multiparty system with two dominant parties, in an environment of uncertainty about the outcome of the election. Using quasi-lexicographic preferences over the number of seats necessary for a party to forma single-party government we explore the choice of the electoral law by the parties. We show that the minor parties never agree to an electoral reform that distorts the Proportional Representation system (PR). We also show that when the electoral competition among the two dominant parties is non-trivial there exists a unique and stable equilibrium: a unique new electoral rule is being adapted by the parliament in substitution of the PR rule. That is we show that when uncertainty about the outcome of the elections is present and if the dominant parties have a strong desire for single-party governments then strategic incentives to collude between them and distort the PR rule kick in. Hence, by colluding they also increase the probability that the winner will form a single-party government. The paper in effect shows that under an uncertain political environment the two dominant parties have an incentive to collude in favour of stability (single-party governments) by eliminating the effect of the third party in the formation of government. To conclude we also show that the equilibrium with the above characteristic is also unique. In an extension we use the timing of the electoral reform as a strategic variable.