Friday, April 29, 2011

Barry R. Weingast and William J. Marshall. 1988. The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets

Barry R. Weingast and William J. Marshall, "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy 96, 1 (Feb. 1988): 132-63.

The purpose of this paper is to extend the theory of the firm to the study of political organizations and to explain the pattern of institutions within the legislatures that facilitates decision making.

I. Introduction
  • The diversity of interests within the legislature creates gains from exchange.
  • Legislative institutions are like market institutions because they reflect:
    1. the goals and preferences of individuals (legislators seeking reelection)
    2. transaction costs that are induced by imperfect information. 
II. The New Economics of Organization
  • Firms emerge to avoid the costs of using markets and the price system; their set of contractual mechanisms substitute for the price mechanism.
  • The literature on vertical integration argues that organizational form is largely an endogenous response to ex post contractual problems and ex post opportunism that arise when ex post incentives of the bargaining parties are inconsistent with performing ex ante agreements.
III. Representatives and Their Constituencies
  • Perspectives in this paper, that legislative institutions can be analyzed as market institutions/firms, rest on the following assumptions:
    1. Congressmen represent the (politically responsive) interests located within their district. Electoral competition induces congressmen, at least in part, to represent the interests of their constituents. Because groups are not uniformly distributed across constituencies, different legislators represent different groups.
    2. Parties place no constraints on the behavior of individual representatives.
    3. Majority rule is a binding constraint.
IV. The Gains from Exchange: The Problem to Be Solved
  • Given the diversity of interests legislators represent, each can bargain and cooperate (vote trade, logroll, etc.) with other legislators in order to benefit their respective constituents.
  • The new economics of organization suggests that institutions evolve to enforce cooperation.
  • Previous work viewed logrolling/vote trading as a market in votes in which legislators give away votes on issues that have lower marginal impact on their district (and therefore on their electoral fortunes) in exchange for votes on issues having a larger marginal impact. 
    • Shortcomings: assumes there are no random or unforeseen future events that may influence outcomes or payoffs. Either the time dimension is suppressed or enforcement of agreements over time is left exogenous. Does not explain how legislators cope with agreements that cover more than one legislative session.
  • Uncertainty over the future status of today's bargain come from:
    1. Noncontemporaneous benefit flows - occurs when benefit flows to one party can be curtailed when the other party reneges on the agreement after they have already received their benefits.
    2. Nonsimultaneous exchange - occurs when bills do not come up for a vote simultaneously. Bills evolve and public opinion can change. 
  • Legislative institutions reduce the circumstances in which breakdown occurs; it is not a substitute for reputation building and trigger strategies commonly used in repeat play, but rather complement those strategies for circumstances in which those strategies fail.
  • In the model in this paper, instead of trading votes, legislators exchange special rights affording the holder of these rights additional influence over well-defined policy jurisdictions. The extra influence over particular policies institutionalizes a specific pattern of trades and because the exchange is institutionalized, it need not be renegotiated each new legislative session and it is subject to fewer enforcement problems.
V. The Legislative Committee System
  • Committees are decentralized decision-making units compose of those legislators with the greatest stake in their jurisdiction.
  • The legislative committee system is defined by the following three conditions:
    1. Committees are composed of a number of seats or positions, each held by an individual legislator. 
      • Associated with each committee is a specific subset of policy issues over which it has jurisdiction; within their jurisdiction, committees possess the monopoly right to bring alternatives to the status quo up for a vote before the legislature.
      • Committee proposals must command a majority of votes against the status quo to become policy.
    2. There exists a property rights system over committee seats called the "seniority system." 
      • A committee member holds his position as long as he chooses to remain on the committee; subject to his reelection, he cannot be forced to give it up.
      • Leadership positions within the committee are allocated by seniority, the length of continuous service on the committee.
      • Rights to committee positions cannot be sold or traded to others. 
    3. Whenever a member leaves a committee, his seat becomes vacant and is filled using a bidding mechanism amongst the congressmen.
  • Assertions about committee operation:
    1. The assignment process operates as a self-selection mechanism.
    2. Committees are not representative of the entire legislature but instead are composed of "preference outliers," or those who value the position highly.
    3. Committee members receive the disproportionate share of the benefits from programs within their jurisdiction.
  • Committee jurisdiction resolves noncontemporaneous benefit flows; a party cannot renege on an agreement to support a bill in another party's jurisdiction by later passing a new bill to revoke that original bill because the reneging party will not have the jurisdiction to bring that bill to a vote. 
  • The legislative committee system effects on coalition formation:
    1. Agenda power held by committee members implies that successful coalitions must include the members of the relevant committee or else the bill will not reach the floor for a vote; the committee veto reduces the feasible set of policies.
    2. Trades among committee members are more likely to succeed that those across committees; inter-committee agreements have to bring separate bills to be voted on while intra-committee agreements can present a single bill that satisfies trading partners simultaneously once it is passed.
    3. Policy will respond only to large changes in political circumstances or to major shifts in the electorate because forming new coalitions is difficult. 
  • The majority rule condition precludes any one committee from extracting too many gains at the expense of others. 
    • Policy in a particular area can remain stable if committee membership is relatively stable.
VI. Conclusion
  • Legislative institutions enforce bargains among legislators.
  • Given the peculiar form of bargaining problems found in legislatures, specific forms of nonmarket exchange are superior to market exchange.
  • Empirical evidence supports four implications that follow from this model of legislative institutions but do no follow from a simple market exchange mechanism.
    1. Committees are composed of "high demanders," that is, individuals with greater than average interest in the committee's policy jurisdiction.
    2. The committee assignment mechanism operates as a bidding mechanism that assigns individuals to those committees they value most highly.
    3. Committee members gain a disproportionate share of the benefits from their policy area. 
    4. As the interests represented on tghe committee change, so too will policy, with the interests of non-committee members held constant. 

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