Barry Weingast

We interpret historical evidence in light of a repeated-game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants. The merchant guild developed the theoretically required ...

Administrative Procedures as Instruments of Political Control MATHEW D. McCUBBINS University of California, San Diego ROGER G. NOLL Stanford University BARRY R. WEINGAST Stanford University A central problem of representative democracy is Imw to ensure that policy ...

Thriving markets require not only an appropriately designed economic system, but a secure political foundation that limits the ability of the state to confiscate wealth. This requires a form of limited government, that is, political institutions that credibly commit the state to honor economic ...

... 2 Positive Theories of Congressional Institutions issues of the Legislative Studies Quarterly, is intended both to sum-marize ... greatly expanded the range of rationales and explanations for congressional practices in particular and for legislative decision making generally ...

I'll present the first chapter of the book on Wednesday, which lays out the basic structure of the argument. It should make for a lively seminar. If anyone is interested in specific topics or chapters, send me an email and I'll forward you the text: ... The task of the social ...

The Politics of Interpretation: Rationality, Culture, and Transition ROBERT H. BATES, RUI JP de FIGUEIREDO, Jr. and BARRY R. WEINGAST I. INTRODUCTION Rational choice theory constitutes a vigorous and contentious voice within political science. Recent political trends suggest ...

This paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions. My thesis is twofold. First, because much of the previous evidence on this question is not evidence at all, many scholars' intuition and conclusions are based on a logically flawed foundation. Second, I have provided here and in previous work a look at a variety of different agencies, and in each case, have shown how the events can plausibly be interpreted as involving Congress. Agency problems within the congressional-bureaucratic system are real and substantial just as they are within corporations. However, as in the latter, institutional forms develop within the congressional system to partially, if not wholly, mitigate these problems. The logical perspective together with the evidence provide a strong case against the agency-dominance hypothesis (as typified by the early sections of Niskanen 1971 and Wilson 1980). Reelection-minded congressmen have substantial incentives to ensure that agencies provide benefits to their constituents. The congressional-bureaucratic system does just that. Agencies are beholden to a small number of congressmen sitting on the relevant oversight committees. These congressmen evaluate agency performance through the decibel meter, i.e., through listening to their constituents, not through in-depth study. And finally, the congressional-bureaucratic system confronts agencies with powerful incentives to serve congressional — read committee — interests. Political scientist Morris Fiorina sums up this approach as follows: qu]The federal agencies exist in a symbiotic relationship with the congressional committees and subcommittees to which they report. Of course, not everything an agency does is of concern to its set of relevant members. It purchases freedom in such areas by playing ball in the areas that are of concern. So part of the agency may be genuinely out of control, but Congress wants it that way. It is a necessary cost of maintaining a bureaucracy ... permeable to congressional influence. (Fiorina 1982b, p. 337, emphasis in original) Several tentative generalizations for deregulation emerge from this perspective. (1) Policy change requires that congressmen perceive political net benefits from the change. If this involves a change in constitutencies, then members of the relevant committees must be willing to give up their current constitutents. For the SEC, the rise of the institutional investors provided such an opportunity. For the ICC and the CAB, the political credit to be gained from deregulation is less obvious and provides a major unresolved issue in the economic theory of regulation. (2) “Market testing,” as undertaken by the SEC, is probably a regular component of the congressional-bureaucratic system. A congressional committee allows an agency to test the waters and generate information about the political effects of a policy change. If the policy change appears politically successful, then Congress provides a statutory underpinning, perhaps extending significantly the scope of the experiment. If it is unsuccessful, then Congress moves to reinstate the status quo. Clearly, there were significant elements of this in the case of the CAB. Congress allowed deregulation-minded economists and lawyers (e.g., Kahn, Bailey, Levine) to take control of the Board. To their credit, these individuals were able to initiate rate deregulation within existing legislation. This proved so successful that, though the final legislation in 1978 significantly extended the bounds of deregulation, it seemed but icing on the cake. (3) The above perspective points up the role of Congress in maintaining policy equilibrium. As the history of the SEC demonstrates, we must examine events preceding the deregulatory period. The evidence reveals that plausible hypotheses about SEC policy change make little sense when studied in the context of thirty-years worth of Commission activity. Similarly, an explanation of CAB or ICC deregulation must not only explain why it occurred in the late 1970s but also why it failed to occur during the previous thirty years. Every president during this period tested the waters of, or actively sought, transportation reform. Yet, prior to the late 1970s, none was successful because the relevant committees rebuffed these efforts. (4) Finally, while marginal accommodations to changes in group composition (to paraphrase Mackay and Reid, 1979) occur within the congressional system, policy remains stable as long as the relevant groups remain stable. This implies that for the near future, substantial progress toward reform or deregulation is unlikely for most social regulatory agencies. This paper suggests the necessary role of Congress in the regulatory policymaking system. Regulatory change, whether halting FTC activism or deregulation as undertaken by the SEC, constitutes a change within the congressional system. While I have argued an extreme view — namely, that Congress is of supreme importance — the evidence is consistent with it. But this view is used primarily to show that the other extreme — agency dominance — seems clearly inconsistent with the evidence. Whether the congressional-dominance hypothesis or a more moderate “shared-influence hypothesis” is more descriptively accurate is not my concern here. Rather, my fundamental premise is that the assumption that Congress controls regulation will prove as useful in understanding regulatory behavior as the assumption that firms maximize profits has proved to be in economic analysis of market behavior.

Upon his death in the autumn of 2006, Milton Friedman was lauded as “the grandmaster of free-market economic theory in the postwar era” by The New York Times and “the most influential economist of the second half of the twentieth century” by The Economist. Winner of the ...

... 2 Katherine Hartford, "Socialist Agriculture Is Dead; Long Live Socialist Agriculture! ... and why this happened in China, offering an institutional explanation of differences between economic reforms in China and in Eastern Europe and ... 35 Almanac of China's Finance and Banking. ...

Four Political Stability and Civil War: Institutions, Commitment, and American Democracy BARRY R. WEINGAST ALTHOUGH the stability of modern American democracy is rarely questioned today, it remained problematic throughout the first century of the republic. 1 In the late ...

Professor Tullock has raised a central question in the confrontation between abstract models of PMR and majority rule as practiced in real institutions. We believe the decision making stability of real-world legislatures lies in the way these legislatures institutionalize majority rule. Logrolling, vote trading, coalition formation, and bargaining are red herrings in this argument. Rather, it is the restrictions on such legislative exchange that promote structure-induced equilibrium. Put differently, institutional arrangements place constraints on the completeness of the majority rule relation by restricting social comparisons. The framework developed here shows that an assumption implicit in the discussions of many majority rule theorists fails to hold. In part, the implicit rationale for focusing upon PMR was that results proved for this rule were presumed to hold forany institution based on PMR. In one sense this remains true, namely, that the majority rule win sets,W(x), are everywhere non-empty. In another sense, however, it is not true that all properties of institutions based upon majority rule are inherited from PMR. The theory outlined above shows that stability may not be as elusive as theorists of PMR have concluded. The concept of equilibrium developed in the last section incorporates the major features of prominent choice institutions as well as capturing the special cases in the literature cited in Section II. We now turn to a brief discussion of future work. We address the question that remains, in our opinion, the salient one in the study of institutions and their effect on policy choice, namely, understanding the factors governing the choice of one institutional arrangement over another. Throughout this paper, we have distinguished agreements that transform the rules from agreements (or vote-trades) that take place within a given set of rules. In principle, anything attainable under the former could also be attained under the latter if there were some form of mechanism to enforce vote-trades as contracts. Under such a rubric, complex legislative agreements in the form of contingent contracts achieve the desired result without resorting to the institutionalization of a rule. In practice, however, there are several problems with vote-trading agreements as contracts. First, the cost of writing these contracts is often quite high due to the number of potential contingencies for which provision must be made. Second, and more important, PMR lacks an enforcement mechanism. Individual parties to contracts in market settings have recourse to the courts. This provides protection beyond the assurance of good faith and brand names. No comparable institution exists within the legislature to supplement the natural though imperfect brand name phenomenon (i.e., that of ‘keeping one's word’ to preserve and enhance credibility for future trades). While the legislature could create a court or committee to monitor contracts and enforce agreements, alternatively, it could simply impose a rule binding upon everyone which insured the outcome sought. Of the two alternative institutions, the latter probably economizes on transaction costs, particularly for those situations that recur with some frequency. With a rule, a new contract need not be negotiated each time between new sets of players. Moreover, a contingency clause might easily be appended to a rule to cover cases where there is widespread agreement that it is inappropriate. For example, in the Congress a special majority may vote to suspend the rules (note that if only a simple majority were required, then this would be no different from PMR). This is the same rationale that underpins the Uniform Commercial Code and other areas of the law of contracts. To cover situations that occur quite regularly, certain standard procedures are written into the law and are automatically a part of any agreement or exchange. This significantly lowers transaction costs (contracts need not be negotiatedsui generis), and in those circumstances where the standard is inappropriate, the parties may simply contract around it. Similar results occur in most areas of the common law. For further discussion, see Posner (1976). In sum, logrolling solutions to the problem of forging agreements are unworkable because they lack enforcement mechanisms. Logrolling, then, cannot constitute an answer to the question, ‘Why so much stability?’ This reasoning justifies our separation throughout the text of choices within a given institution and choices among institutions. This distinction is a natural one, dating back to Buchanan and Tullock'sThe Calculus of Consent. There they analyze separately the constitutional calculus of choice over voting rules and the behavior under a specific voting rule. If institutional rules are to constitute an answer to Tullock's stability question, then we must confront the manner in which those rules are chosen. There are very few theories about the choice of rules — exceptions include Buchanan and Tullock (1962), Buchanan (1975, 1979), and contributions in the property rights literature. Even in the absence of a theory, we may still worry that constitutional choice processes (the choice of rules) are vulnerable to the same instabilities found in PMR. We term this the ‘Riker Objection’ since this issue was recently posed by Riker (1980). If institutional constraints create equilibrium — that is, if transformations of a PMR institution into a non-PMR institution create a situation of equilibrium from one without an equilibrium — then preferences over outcomes lead naturally to aninduced set of preferences over institutional arrangements. In this sense, an individual prefers one institution over another if he prefers the equilibrium policy state of one over the equilibrium (or unpredictability) of the other. In the case of multiple equilibria, an individual prefers the institution that yields the highest expected utility given a probability distribution over equilibrium states (Plott, 1972). As long as preferences for policy states differ, then preferences over institutions with differing equilibrium states (distribution of equilibria) should also differ. The Riker Objection suggests that a simple extension of McKelvey's Chaos Theorem predicts endless cycles here so long as PMR governs the choice over institutions. In this sense, the existence of institutions and their stability must remain, like policy choices under PMR, tenuous — what Riker calls ‘unstable constants.’ Nevertheless, empirically we observe institutions persisting for long periods; in light of the Riker Objection, Tullock's question applies at this level as well. We may make several observations that imply an attenuation of endless cycling at the institutional-choice level. First, typically, non-PMR rules govern the choice of new rules. Second, it is risky to attempt to change the status quo contrary to the interests of those currently in control. Since failure may lead to the imposition of sanctions, expected gains must be weighed against the certainty of these sanctions. While this does not rule out changes, it will reduce the number of attempts. This is surely the conclusion to be drawn from a reading of the history of the U.S. Congress. The comparison between choice in this setting and the McKelvey world, then, is not parallel since proposals are costless to make in the latter but not in the former. Finally, there often exists a well-defined status quo alternative. In the case of the social contract, the status quo is the Hobbesian state of nature. For the case of the U.S. Constitutional Convention, it was the Articles of Confederation (Riker, 1979). In these and similar settings, even though there may be no formal rule that the status quo must literally be voted last; this restriction nevertheless may hold de facto. Consequently, the constitutional outcome is either the status quo ante or an alteration that cannot be vetoed, i.e., an element in the ‘win set’ of the status quo. With these qualifications in mind, the effect of the Riker Objection is mitigated. Even at the constitutional level, then, restrictions on the ability of individuals to make proposals may induce equilibrium.

This article focuses on the political factors underpinning economic growth and the development of markets—not simply the rules governing economic exchange, but also the institutions governing how these rules are enforced and how they may be changed. A critical political factor is ...

... Hoover Institution, and Ward C. Krebs Family Professor and Chair, Department of Political Science, Stanford University ... are likely to disagree about a range of policies, such as the political rights of ... My theory suggests that self-enforcing limits on the state result when members of a ...