Bargaining in the Shadow of Democracy

Abstract

This paper considers the question of when courts should enforce contracts between government regulators and regulated entities regarding the scope and content of future regulations. The paper focuses on the contracts that bank regulators supposedly made with thrifts (and that resulted in the Winstar decision in 1996 by the Supreme Court), habitat conservation plans, and the proposed tobacco settlement that Congress came close to ratifying. We argue that the Court in Winstar fundamentally erred in eviscerating certain special procedural safeguards that the courts previously had imposed upon government dealmaking regarding future regulation. We argue that these procedural safeguards - notably, the unmistakeability requirement that government commitments be stated explicitly and the express delegation requirement that administrative agencies possessed express legislative authorization for their dealmaking - served the desirable end of deterring the formation of regulatory contracts that reflected interest group capture (the capture model of regulatory contracts) or that reflected the desire of politicians and competing interest groups to avoid the downside risks entailed in open public debate regarding important issues of public policy (the compromise model of regulatory contracts). We also argue that, even where the pre-Winstar and other procedural safeguards we propose have been satisfied, a strong normative argument exists for limiting the courts' enforcement of contracts regarding the scope and content of future regulation.