DELEGATINGPOWERS

A TRANSACTION COST POLITICSAPPROACH TO POLICY MAKING

UNDER SEPARATE POWERS

D A V I D E P S T E I N

Columbia University

S H A R Y N O ’ H A L L O R A N

Columbia University

PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE

The Pitt Building, Trumpington Street, Cambridge, United Kingdom

CAMBRIDGE UNIVERSITY PRESS

The Edinburgh Building, Cambridge CB2 2RU, UK http://www.cup.cam.ac.uk40 West 20th Street, New York, NY 10011-4211, USA http://www.cup.org10 Stamford Road, Oakleigh, Melbourne 3166, AustraliaRuiz de Alarcon 13, 28014 Madrid, Spain

q David Epstein and Sharyn O’Halloran 1999

This book is in copyright. Subject to statutory exceptionand to the provisions of relevant collective licensing agreements,no reproduction of any part may take place withoutthe written permission of Cambridge University Press.

First published 1999

Printed in the United States of America

Typeface Sabon 10/12 pt. System Penta [BV]

A catalog record for this book is available from the British Library.

Library of Congress Cataloging in Publication data

Epstein, David, 1964–Delegating powers : a transaction cost politics approach to policy

making under separate powers / David Epstein, Sharyn O’Halloran.p. cm.Includes bibliographical references.ISBN 0-521-66020-3. – ISBN 0-521-66960-X (pbk.)1. Delegation of powers. 2. Delegation of powers – United States –

Case studies. 3. Transaction costs. I. O’Halloran, Sharyn, 1964–. II. Title.JK585.E67 1999320.473'04 – dc21 99-12787

CIP

ISBN 0 521 66020 3 hardbackISBN 0 521 66960 X paperback

ix

Contents

List of Figures and Tables page xiiPreface xvii

1P A T H S O F P O L I C Y M A K I N G

The Politics of Military Base Closings 1Delegating Powers: The Puzzle 4A Transaction Cost Politics Approach 7Delegation and Broad Themes in American Politics 9Outline of the Book 12

2C H O O S I N G H O W T O D E C I D E

Legislative Organization 14Delegation and Oversight 18Why Delegate? 29

3T R A N S A C T I O N C O S T P O L I T I C S

Lessons from the Theory of the Firm 35A Theory of Transaction Cost Politics 43The Political Hold-up Problem 47

4T H E D E C I S I O N T O D E L E G A T E

The Elements of Policy Making 53Equilibrium Actions and Outcomes 59Testable Predictions 75

Contents

x

5D A T A A N D P O S T W A R T R E N D S

Data Sample 86Delegation Ratio 90Constraints 99Total Discretion 106Postwar Trends in Executive Discretion 112

6D E L E G A T I O N A N D

C O N G R E S S I O N A L – E X E C U T I V ER E L A T I O N S

Divided Government: The Debate 122Discretion and Divided Government 129Roll Calls over Delegation 139Vetoes and Delegation 150The Structure of Delegation: To Whom Do You Delegate? 151Testing for Strategic Delegation 154Implications of Divided Government for Public Policy 161

7D E L E G A T I O N A N D

L E G I S L A T I V E O R G A N I Z A T I O N

Perspectives on Legislative Organization 164Committee Outliers in a System of Separate Powers 168Committees, Parties, and Delegation 182Legislative Procedures and Executive Discretion 187Summary 194

8D E L E G A T I O N A N D I S S U E A R E A S

Introduction 196Issues, Delegation, and Public Laws 197Issue Areas and Information 206Delegation and Distributive Politics 216Summary 230

9C O N C L U S I O N

Summary of Results 232

Contents

xi

The Grand Regression: Integrating Theoriesof American Political Institutions 233

Separation of Powers in the United States 236

A N A F T E R W O R D O NC O M P A R A T I V E I N S T I T U T I O N S

Presidential Systems 240Parliamentary Systems 242Comparative Policy-Making Structures 244

A P P E N D I C E S

A. Proofs from Formal Model in Chapter 4 245B. Sample of Public Laws 257C. Sample Coding Sheet 267D. Coding Rules for Discretion 273E. Gridlock Interval and Other Measures of Interbranch

Conflict, 1947–1992 285F. Coding Rules for Roll-Call Votes 289G. Committee Hearings Data 297

References 301Index 313

xii

Figures and Tables

Figures1.1 Average Discretion by Reporting Committee page 62.1 Bureaucratic Drift and Agency Discretion 263.1 Schematic Representation of the Boundaries of a

Firm 403.2 Differences between Political Transaction Costs

and Transaction Cost Politics 453.3 Boundaries of the Administrative State 504.1 Game Tree 564.2 Information, Outcomes, and the Status Quo 624.3 Equilibrium Outcomes Illustrating Ranges of

Delegation 684.4 The Impact of an Agency on Committees’

Incentive to Gather Information 724.5 Changes in Equilibrium as Uncertainty Increases 765.1 Data Road Map 885.2 Histogram of Delegation Ratio, with and

without Zero-Delegation Laws 985.3 Eigenvalues from Factor Analysis 1035.4 Histogram of Constraint Ratio, with and

without Zero-Delegation Laws 1055.5 Scatterplot of Delegation Ratio and Constraint

Ratio 1075.6 Histogram of Discretion Index, with and

without Zero-Delegation Laws 1105.7 Iso-Discretion Lines 1135.8 Average Number of Major Provisions, by Congress 1145.9 Average Discretion, by Year 116

5.10 Average Delegation Ratio, by Year 1185.11 Average Constraint Ratio, by Year 119

Figures and Tables

xiii

6.1 Major Acts Passed during Unified and DividedGovernment 125

6.2 Gridlock Region 1276.3 Discretion vs. Seat Share, by Congress 1346.4 Support for Delegation, by Party and

Administration 1446.5 Voting over Discretion, by Congressional Party

and Party of the President 1517.1 Percentage of Restrictive Rules by Congress,

1947–1992 1918.1 Average Discretion in Laws Reported, by Committee,

1946–1992 2048.2 Average Discretion by Reporting Committee(s) 2058.3 Average Number of Hearings and Percentage of

Oversight Hearings, by Committee, 1947–1992 2108.4 Discretion and Number of Hearings, by

Committee 214A-1 Optimal Committees from Floor’s Perspective 255

Tables4.1 Empirical Predictions 785.1 Summary Statistics 925.2 Acts with No Executive Delegation 955.3 Acts with Lowest and Highest Delegation Ratio 965.4 Agency Locations and Percentage of Laws

Containing Each Category 995.5 Categories of Constraints 1015.6 Factor Loadings and Uniqueness 1045.7 Correlations of Constraints with Delegation

Ratio and Year 1085.8 Acts with Least and Most Total Discretion 1116.1 Description of Variables and Summary Statistics 1306.2 Difference of Means Test of the Effect of

Unified and Divided Government onDelegation, Discretion, and Constraints 132

6.3 OLS and Tobit Estimates of the Effect ofCongressional–Executive Conflict on Discretion 136

6.4 Major U.S. Trade Legislation, DividedGovernment, and Delegation, 1948–1992 140

6.5 Descriptive Statistics for Roll-Call Voting Analysis 1436.6 Probit Estimates of Individual Roll-Call Voting

over Delegation 146

Figures and Tables

xiv

6.7 Roll-Call Support for Delegation by Party,Leadership Status, and Administration 149

6.8 Percentage of House Members Voting in Favorof a Roll Call by Party, Party of the President,and Whether to Raise or Lower Discretion 152

6.9 Average Executive Discretion for Laws Enactedover Presidential Vetoes, by Unified andDivided Government 152

6.10 Discretion and Bureaucratic Structure (Percentageof Laws Delegating Authority to an AgencyType by Divided and Unified Government) 156

6.11 Ordered Probit Estimates of Agency Locationfor All Laws 159

7.1 Description of Variables and Summary Statistics 1727.2 Ordinary Least Squares Estimates Predicting

Committee Outliers 1747.3 Ordinary Least Squares Estimates of Committee

Outliers and Interbranch Conflict 1797.4 Ordinary Least Squares Estimates of Ranges of

Committee Outliers and Interbranch Conflict 1817.5 Ordinary Least Squares Estimates of Legislative

Organization and Discretion 1867.6 Restrictive Rules and Discretion, by Committee 1897.7 Restrictive Rules by Divided Government 1907.8 Probit Estimates of Restrictive Rules and

Congressional-Executive Conflict 1927.9 Restrictive Rules, Multiple Referral, and

Discretion 1938.1 Mayhew Categorization of Laws and Average

Discretion 1998.2 Poole-Rosenthal Vote Categories and Average

Discretion 2028.3 Committee Classification of Scope, Salience, and

Level of Conflict 2098.4 Summary Statistics 2128.5 Information and Discretion 2158.6 Information and Discretion, Clausen Issue Codes 2178.7 Information and Discretion, Peltzman Issue Codes 2189.1 Grand Regression 234F-1 Relevant Status Quo for Different Types of Roll-

Call Votes 292

1

1Paths of Policy Making

No axiom is more clearly established in law, or in reason, than thatwherever the end is required, the means are authorized; wherever ageneral power to do a thing is given, every particular power neces-sary for doing it is included.

James Madison, Federalist 44

THE POLITICS OF MILITARY BASE CLOSINGS

In 1988 the U.S. Congress established a blue-ribbon Base Realignmentand Closure (BRAC) Commission. Its powers were broad: to recommenda list of military establishments to be closed, which would become lawunless Congress voted to override the commission’s decision. Its impactwas immense, with foreseen economic consequences, calculated in termsof lost jobs and economic growth, that could devastate the local com-munities surrounding targeted military bases. Why would Congress del-egate authority over a policy area so obviously vital to constituents? Andwhy did delegation take the shape of an independent commission?

Let us examine the problem from legislators’ point of view. They havethree choices: (1) ignore the issue entirely and close no bases; (2) pass alaw listing which bases will be closed; or (3) delegate this decision to theexecutive. Congress had taken the first option after a round of baseclosings following the Vietnam War, nearly five hundred in all, had leftmembers unhappy both over the loss of jobs in their districts and withthe perception that the cuts were politically motivated, coming largely atthe expense of Democrats. In retaliation, Congress in 1976 imposed therequirement that any base closings be preceded by a full environmentalimpact statement (EIS), which promptly put an end to further militaryclosings for the next dozen years.

A typical case was the Loring Air Force Base in Maine. Once a vitaloutpost for B-52 bombers that could reach Russia from the mainland,

Delegating Powers

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Loring’s strategic importance declined with the increasing range of mod-ern aircraft and the advent of nuclear submarines. Accordingly, theDefense Department planned to reduce Loring from a Strategic Air Com-mand base to a military airfield with a minimal crew. However, theprocess of obtaining the necessary environmental clearances gave oppo-nents time to marshal their forces, bringing ‘‘enormous political pressureto bear on the Congress and the Department,’’ according to Frank Car-lucci, secretary of defense under Reagan. A ‘‘Save Loring Committee’’was formed, after which the Senate passed a bill prohibiting the down-grading of the base. Before the House had a chance to act, the DefenseDepartment abandoned its plan to scale down the base altogether.

In the late 1980s, however, the political climate began to change. Thecombination of lessening cold war tensions and a budget crunch madebase closings, with an estimated savings of between $2 and $5 billion ayear, politically attractive. Then Rep. Dick Armey (R-Tex.) offered afloor amendment to the 1988 Defense Authorization bill to make baseclosing easier, which surprised observers by coming within seven votesof passage. It was now clear that the idea of closing at least some baseshad considerable support among rank-and-file members.

If base closings were to happen, though, some institutional mecha-nism had to be devised to select which bases would be targeted. Choos-ing a list of bases by enacting a law through the normal legislativeprocess seemed both technically and politically unattractive. To preservethe benefits of unified decision making and action, the details of defensepolicy have usually been left to the executive branch, which has subse-quently acquired a considerable degree of expertise in these matters.Given the complexity of the task and the possible consequences of ill-considered policy – namely, a reduction in the nation’s capacity for self-defense – legislators had an understandable desire to delegate the task toexperts.

It is also true that legislators feel much more comfortable passing billsthat distribute benefits widely rather than bills that take benefits awayfrom a few districts. Thus, highway bills are legislative perennials, butbills proposing selective cuts are seldom introduced. Even when somecuts are necessary, members fear that the legislative process will giveextra weight to those in key positions, such as party and committeeleaders, rather than distribute burdens fairly. As a result, legislationsingling out one or a few districts is rarely passed.

Consider, for example, the fate of the Staten Island Home Port. In1990, with the navy shrinking, the House Armed Services Committeeproposed closing down the Staten Island naval base. The port had longbeen considered superfluous, and Defense Secretary Dick Cheney hadrecently ordered a freeze on any further construction there, pending a

Paths of Policy Making

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report from the navy defining its priorities. The committee also knewthat many liberal Democrats from surrounding New York districts op-posed the base. However, then-freshman representative Susan Molinari(R-NY) staged a counterattack, claiming that she had been unfairlysingled out and lining up support among Republicans and other repre-sentatives with bases in jeopardy, warning, ‘‘Your military installationcould be next.’’ In the end, Molinari was able to pass a substituteamendment that gutted the proposal and saved the base from closure.

In the face of these difficulties, delegation became an attractive alter-native, much as Congress has delegated authority to the executive toovercome its logrolling tendencies in the area of trade policy. This optionhad its drawbacks as well, however, as delegation to executive officialswith political appointments might lead to politically targeted reductions,which majority Democrats, recalling the events of the early 1970s,wanted to avoid at all costs.1 Hence, both traditional legislative actionand wholesale delegation to the Department of Defense (DoD) were seenas unappealing. This left Congress with the possibility of delegating toan independent commission whose suggestions would receive minimalpolitical interference from either the legislative or executive branches.Policy made this way would be unpredictable, but at least the processwould be fair ex ante, allowing legislators to escape their own logrollingdilemma without surrendering control to executive agencies with con-trary partisan aims.

The final delegation regime balanced these concerns. First, a twelve-member commission was to be chosen by the secretary of defense inconsultation with Congress. In fact, Congress was so eager to make theBRAC Commission independent that the enacting legislation includedthe unusual stipulation that no more than half of the commission’s staffcould have been previously employed by the Defense Department. Thecommission was to recommend a set of military bases to be closed ordownsized, provided that the expected savings from the closure wouldexceed the associated costs in six years or less.2 These recommendationswere not subject to the requirement of an environmental impact state-ment, and although actual base closings would have to be accompanied

1These fears were not necessarily ill founded. Two years later, Dick Cheney, Presi-dent Bush’s secretary of defense, proposed a list of potential base closings in whichover 99% of the lost jobs would come from Democratic House districts. He accom-panied this list with the suggestion that Democrats clamoring for defense cuts shouldstart by sacrificing obsolete bases in their hometowns.

2This provision was added to the bill at the behest of Rep. Herbert Bateman (R-VA), whose Fort Monroe base was at risk. However, the base was laden with somany years of refuse – it still contained unexploded Confederate artillery shells – thatthe cleanup costs would have outstripped savings for at least twenty-five years. Theplan worked; Fort Monroe was spared in the final list.

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by an EIS, legal challenges to these statements had to be filed withinsixty days.

The commission’s list would have to be accepted or rejected by thesecretary of defense in its entirety, without the possibility of amendment,within fifteen days. If the secretary accepted it, the list would then go toCongress, which had forty-five working days to pass a joint resolutionof disapproval. This resolution had to be enacted by both houses, withthe possibility of a presidential veto, and again they could not amendthe list of bases. Thus, both the executive and legislative branches werefaced with a closed rule; that is, an up-or-down decision. If no disap-proval resolution was passed, then the list of closings would automati-cally go into effect.

Events proved the efficacy of this procedure: The commission recom-mended that eighty-six bases be closed and a further fifty-four be re-aligned, and a disapproval motion was overwhelmingly defeated in theHouse. In fact, Congress used a nearly identical procedure for subse-quent base closings in 1991, 1993, and 1995, resulting in overall esti-mated savings of $5.6 billion a year.

In the end, then, most of the crucial policy decisions regarding baseclosings were made by an independent commission, with relatively littleroom for political interference. It is possible, indeed likely, that in thiscase the decision-making structure coincided quite closely with onewhose sole objective would be the making of good public policy. How-ever, the commission structure was not chosen primarily for its policybenefits; otherwise, Congress could have established such a commissionanytime in the previous twelve years. Neither would it have included theprovision that all closings pay for themselves within six years, thusexempting those bases that were in the worst shape.

Rather, the commission structure was adopted because it best servedlegislators’ need to close some bases without handing over too muchpower to the Defense Department. Congress examined its expected costsand benefits under alternative policy-making structures and selected theone that provided the most possible expected net political benefits, allo-cating decision-making authority across the branches and constraining itin such a way as to reap the benefits of delegation while minimizing theassociated political costs. It is this type of choice over alternative policy-making procedures, and their impact on policy outcomes, that this bookwill explore.

DELEGATING POWERS: THE PUZZLE

The United States Constitution divides the responsibilities of policy mak-ing among the various branches of government: Congress writes the

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laws, the executive branch implements them, and the courts interpretthem. While the Constitution provides a general framework for govern-ment, though, many of the details concerning the interaction among thebranches and the daily functioning of the state were left unresolved. Inmany ways, the history of American political development from 1789 tothe present can be viewed as an attempt to arrive at a manageablearrangement that allows government to be effective yet responsive.

We see this inherent tension between effectiveness and responsivenessmost clearly in the dramatic changes in the structure of government andthe powers and functions of the bureaucracy that have arisen since theNew Deal. What divides the modern administrative state from its pred-ecessors is the delegation of broad decision-making authority to a pro-fessional civil service. But this delegation of authority from Congress tothe executive has never been monolithic; it has varied over time, by issuearea, and with national political and economic trends.

Consider Figure 1.1, for example, which examines a set of 257 im-portant laws enacted in the postwar era.3 The vertical axis represents thenumber of provisions in a given law that delegate policy-making author-ity to the executive, as a proportion of the total number of provisions inthat law. The horizontal axis identifies the committee in the House ofRepresentatives that considered and reported the bill that eventuallybecame law.

What is most striking about the figure is the considerable amount ofvariation across the different issue areas. Predictably, Congress delegatesleast authority in bills reported out of Ways and Means, Budget, Rules,and the House Administration Committees. But perhaps counter to in-tuition, bills reported from the Agricultural and Public Works Commit-tees, usually considered ‘‘pork-barrel’’ policy areas that legislators jeal-ously guard, do in fact delegate significant authority to the executive.Finally, the Armed Services Committee delegates the most.

Or take a few specific examples. In many cases, we observe Congressdelegating broad mandates to executive agencies. The 1934 ReciprocalTrade Agreements Act, for instance, gave the president authority toreduce tariffs unilaterally by up to 50 percent, and the 1970 Clean AirAct required that industries use the ‘‘best available control technology’’to reduce emissions but left the definition of the crucial term ‘‘best’’ tothe EPA’s discretion. These decisions on the structure of policy makinghave cleared the way for a sharp reduction in trade barriers in the formercase and tough environmental standards in the latter.

3These comprise the enactments included in Mayhew’s (1991) analysis of importantpostwar legislation, updated through the 102d Congress. Chapter 5 describes thesedata in detail.

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Paths of Policy Making

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In other cases, Congress enacts painfully detailed legislation, leavingadministrative agencies with little or no leeway. For example, in 1973Social Security benefits were increased by exactly 11 percent; in 1974Congress increased the minimum wage to $2.30 in three staged hikes;and in the Tax Reform Act of 1986 Congress specified that the existingfourteen tax brackets would be collapsed to two and mandated a sharpreduction in overall rates. In each of these instances, the executive branchwas limited to carrying out Congress’s explicitly stated wishes withouthaving much independent impact on the content of these policies.

It is clear from these examples that where policy is made – in Congressor through delegation to the executive – has a significant impact onpolicy outcomes. The central puzzle to be explained, then, is why doesCongress delegate broad authority to the executive in some policy areasbut not in others? Does this delegation reflect the particularities ofan issue area, such as who are its benefactors, who are adversely af-fected, and what are its complexities? Does it reflect deeper structuralfactors, such as legislative organization, committee composition, or con-gressional–executive conflict (divided government)? Is executive branchdecision making different from the internal workings of Congress,and how does this affect the decision to delegate? Can Congress per-fectly control delegated authority through administrative procedures,oversight, and administrative law? Does it want to? In the end, what arethe implications of delegating discretionary authority for our separa-tion of powers system and the incremental mode of policy making thatit was meant to encourage? Can the virtues of separate powers intendedby the Founders be maintained alongside significant delegation to theexecutive?

A TRANSACTION COST POLITICS APPROACH

Our approach to this question begins with the observation that policycan be made in Congress, through delegation of authority to executiveagencies, or by some mixture of these two. Furthermore, the amount ofdiscretionary authority delegated is a decision made by Congress, whichcan write either detailed legislation that leaves the executive with littlelatitude in implementation or vague laws that leave executive actors withbroad discretionary powers. And when deciding where policy will bemade, Congress trades off the internal policy production costs of thecommittee system against the external costs of delegation. Thus, Con-gress’s decision to delegate is similar to a firm’s make-or-buy decision;hence our usage of the term ‘‘transaction cost politics.’’

What are the costs associated with each alternative? Legislators canenact direct, detailed laws through normal congressional procedures, but

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the necessary information to make well-formed policy may be costly toobtain; bicameralism and supermajority requirements inhibit speedy,flexible action; and legislative logrolls tend to inflate the costs of eventhe simplest policy initiatives. Alternatively, Congress can delegate au-thority to the executive branch to escape this dilemma, but bureaucratsmay be motivated as much by the desire to pursue their own policygoals, inflate their budgets, and increase their scope of control as by theirdesire to follow congressional intent. Neither option is without its faults,but in different circumstances one or the other may be relatively moreattractive from legislators’ point of view.

In some cases, delegation may offer legislators an appealing – orirresistible – alternative to making policy themselves. Consider the issueof airline safety, which is characterized on the one hand by the need fortechnical expertise and on the other by an almost complete absence ofpotential political benefits. That is, policymakers will get little credit ifthings go well and no airline disasters occur, but they will have towithstand intense scrutiny when things go wrong: Airline regulation isan issue with only a political downside, and failures tend to be spectac-ular and well publicized. Furthermore, legislative and executive prefer-ences on this issue will tend to be almost perfectly aligned: have feweraccidents rather than more as long as the costs to airlines are not prohib-itive. The set of individuals receiving benefits, the flying public, is diffuseand ill organized, while those paying the costs of regulation, the airlinecompanies, are well organized and politically active. And, keeping inmind the easy observation of deficiencies in the system, delegated poweris relatively simple to monitor. For all these reasons, even if legislatorshad unlimited time and resources of their own (which they do not),delegation to the executive would be the preferred mode of policy mak-ing.

By contrast, in other policy areas legislators will be loath to cedeauthority to the executive. Consider tax policy, where Congress usesconsiderable resources to write detailed legislation that leaves the execu-tive branch with little or no leeway in interpretation.4 The politicaladvantages of controlling tax policy come not from the duty of settingoverall rates, which taxpayers tend to resent, but from the possibility ofgranting corporations and other well-organized lobby groups special taxbreaks, so-called corporate welfare. If designed correctly, these benefitscan target a specific industry or group and are paid for by the generalpublic, either through taxes paid into general revenues or the decrease in

4The Congressional Quarterly summary of the Tax Reform Act of 1969, for in-stance, listed 136 major provisions, of which only 3 delegated substantive authorityto the executive.

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revenue stemming from the tax break. Such political benefits are notlightly forgone, and they would be difficult to replicate through a dele-gation scheme with open-ended mandates. Thus, Congress continues tomake tax policy itself, despite the demands of time and expertise thatthis entails.

Our theory predicts, then, that policy will be made in the politicallymost efficient manner, be it through direct legislative action, throughdelegation to executive branch agencies, or through some combinationof these two. Note the term ‘‘politically’’ efficient; we make no claimthat policy making under separate powers will be technically or econom-ically efficient, allocating resources to their greatest advantage. Indeed,as some features of the base-closing case demonstrated, policy makingmay be quite inefficient according to a strict economic benchmark.Rather, we claim that policy will be made in such a way as to maximizelegislators’ political goals, which we take to be reelection first and fore-most. Legislators will prefer to make policy themselves as long as thepolitical benefits they derive from doing so outweigh the political costs;otherwise, they will delegate to the executive.

DELEGATION AND BROAD THEMESIN AMERICAN POLITICS

Our approach to delegation has significant implications for a number ofissues in American politics, one of which is the debate over whetherCongress can control unelected regulatory agencies when delegating au-thority. Some critics, most notably Lowi (1969), argue that congres-sional delegation of authority has become equivalent to an abdication ofCongress’s constitutionally assigned policy-making role, in which legis-lators have over time surrendered their legislative powers to unelectedbureaucrats. The result has been a system where special interests reignsupreme, cozying up to the very bureaucrats set up to regulate them, aslegislative actors turn a blind eye to the situation. Policy, then, reflectsthe demands of these interests at the expense of consumers and thepublic at large.

The counterargument, as posed for example by McCubbins andSchwartz (1984), McCubbins, Noll, and Weingast (1987; 1989) andKiewiet and McCubbins (1991), is that legislators can control bureau-crats through oversight and administrative procedures such as congres-sional hearings, reporting requirements, and enfranchising third partiesinto the decision-making process. If Congress can curtail bureaucraticexcesses through these means, then delegation need not be as deleteriousas previously assumed.

Our perspective emphasizes that delegated authority cannot be judged

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in a vacuum: One must compare bureaucratic policy making with thenext best alternative, which is policy making through committees. In-deed, special interests may receive protection through favorable agencyregulations, but is this more widespread or morally more opprobriousthan having them protected through a tax loophole or a targeted provi-sion in a bill?

Or consider the other side of the coin: The proposal that Congresscan control delegated authority through fire-alarm oversight and admin-istrative procedures. In our model, Congress delegates those areas inwhich the legislative process is least efficient, and, accordingly, weshould not expect oversight to be either perfect or desirable. Legislatorslacking the time, expertise, and/or political will to make hard policychoices themselves in an issue area will not magically find these resourceswhen it comes time to oversee the executive. Nor should we necessarilywant them to try, if this would decrease agencies’ incentives to invest inpolicy expertise. In essence, we claim that a selection bias is at work here:A theory of oversight divorced from a theory of delegation will overlookthe fact that those issue areas in which the executive makes policy differfundamentally from those in which Congress makes policy itself.

Legislative Organization and Delegation

We also address what has come to be known as the ‘‘information versusdistribution’’ debate in the legislative organization literature; that is,whether committees primarily serve members’ distributive, pork barrelneeds or their desire to avoid the consequences of ill-formed policy. Weassert that this question must be a false dichotomy: Some policy areasare characterized more by informational concerns, others by distributive,and still others by both. The right question to ask, from our perspective,is how the informational or distributive content of an issue area affectsthe types of procedures used to implement policy. Specifically, we shallargue that informationally intense policy areas will be good candidatesfor delegation, while distributive issues will tend to be made in Congress.

Along these lines, our analysis carries implications for the study ofcommittee outliers and excessive legislative logrolling. In the congres-sional-organization literature, the cost of these committee-based pathol-ogies is simply less efficient legislation. In our view, the poorer theperformance of the committee system, the more likely it is Congress willdelegate to the executive. So even though committees have monopolypower internally, they face external competition from the executivebranch, and this may be sufficient to rein in committee excesses. Simi-larly, the possibility of delegating authority to executive actors affects

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legislators’ incentives to invest in issue-specific expertise: In some cases itgives committees greater incentives to make such investments; at othertimes, less incentives.

We also claim that legislative organization is directly affected by itsbroader environment of separate powers: Congressional committees willbe organized differently given the possibility of delegation to the execu-tive. Their preferences will not be extreme, as predicted by a purelydistributive approach, nor will they meet the informational theory’sexpectations of precisely matching the median floor voter’s preferences.Rather, committees will tend to be moderately biased in a directionopposite to the preferences of the executive branch; they will be contraryoutliers. This highlights the differences between a policy-making perspec-tive that begins and ends within Congress, and one that incorporatesexecutive branch decision making into the analysis.

Divided Government and Delegation

Our findings also cast a new light on the divided-government debate,specifically, the question about whether divided government has signifi-cant policy consequences. As the term ‘‘gridlock’’ creeps into the popularvernacular, it has become commonplace to assume that divided govern-ment is synonymous with policy making even more convoluted andincremental than the Founders imagined, so much so that it challengesthe ability of the national government to respond to pressing issues ofthe day. On the other hand, some authors – most notably, Mayhew(1991) – argue that the same number of important pieces of legislationget passed under unified and divided government, so perhaps the claimsof gridlock are overdrawn.

We reply that it is not only the quantity of legislation that matters,but the quality as well, and that the laws passed under divided govern-ment differ significantly from those passed during times of unified gov-ernment. We reanalyze all 257 pieces of legislation that Mayhew countsas significant postwar enactments and ask whether any appreciable dif-ference in executive branch discretion is discernible under unified anddivided government. Our findings indicate that, in fact, Congress dele-gates less and constrains more under divided government. Thus, splitpartisan control of our national policy-making institutions, even if itdoes not lead to legislative gridlock, may result in procedural gridlock –that is, producing executive branch agencies with less authority to makewell-reasoned policy and increasingly hamstrung by oversight from con-gressional committees, interest groups, and the courts.

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Separated Powers and the Dynamics of Policy Change

Finally, our approach has implications for broader questions concerningour separation of powers system. The traditional wisdom holds that,given our constitutional design of bicameralism, separation of powers,checks and balances, and federalism – the U.S. system of government isconservative in the classic sense of the word. Policy change is hard,requiring large and persistent majorities. Parties, and the platforms theyespouse, have arisen to bridge the gaps between the various electedbranches, but they are in general too weak and fragmented to bringgovernment anywhere near the system of responsible party governmentcalled for by a series of mid-century scholars.5

Our theory turns this account on its head by noting that the samemechanisms that impede policy making through the normal legislativeprocess also insulate bureaucrats from external control. When it is hardto make new policy, it is hard to overturn what bureaucrats have done.In this account, parties are not the only key to policy movement, as asingle branch of government is empowered to make regulations with thebinding force of law. Thus, the overall impact of a separation of powerssystem may be not to reduce the amount of policy made but merely tochange its location.

OUTLINE OF THE BOOK

The following chapters elaborate our argument in greater detail. Thenext chapter reviews a number of relevant literatures, including the largeliteratures on congressional organization and legislative oversight of thebureaucracy, and the rather svelte body of work on the question of whatpolicy areas Congress chooses to delegate to the executive. Chapter 3reviews some of the recent insights into the economic theory of the firmand hierarchical organizations, which we then use as a basis for ourtheory of transaction cost politics. Chapter 4 describes the theoreticalbuilding blocks of our study and details a game theoretic model ofCongress’s decision to delegate. We predict in which cases Congress willchoose to delegate rather than make policy itself, derive several proposi-tions relating political conditions to delegation and agency discretion,and detail the empirical hypotheses that follow from our model. Chapter5 describes the data used in our study and presents basic trends inexecutive branch discretion in the postwar era. Chapters 6, 7, and 8 testthe implications of our model for congressional–executive relations, leg-

5See, for instance, Schattschneider (1942), Key (1947), and APSA Committee onPolitical Parties (1950).

Paths of Policy Making

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islative organization, and patterns of policy making across issue areas,respectively. The final chapter summarizes our findings, combines theminto a single analysis, and draws out their implications for delegationand policy making in our modern separation of powers system.