Legislative Majorities as Nonsalvageable Assets

Abstract

Without enforcement mechanisms, agreements between interest groups and legislators would be worthless. Political exchanges, like private transactions, require some assurance that agreements will be honored after the terms of trade are reached. Interest groups are not likely to expend resources to secure the passage of legislation if laws once enacted are easily altered or repealed. Mechanisms to maintain political bargains are the central focus of the interest-group theory of the independent judiciary developed by William Landes and Richard Posner [11]. The judicial branch acts as a third-party enforcer of agreements struck between the legislative branch and interest groups. This mechanism for enforcement is analogous to an explicit contract. The LandesPosner framework and its extensions are reviewed and summarized below. One of our purposes in this paper is to broaden the analysis of the enforcement problems associated with political transactions. Where explicit political contracts are inadequate or expensive, we examine the use of implicit or self-enforcing mechanisms. In contrast to third-party enforcement, implicit contracts are self-enforcing in the sense that they rely on the threat of the termination of an interest group's wealth transfer to maintain the transactional relationship. The specific type of self-enforcing contract treated in this paper involves investments by voters, interest groups, and political parties in legislative majorities. Control of the legislature by larger-than-minimum majorities, which is analogous to the purchase of a nonsalvageable, firm-specific asset, emerges in political markets as a way for a party to assure interest groups that it will not renege on deals struck in the past. In our view, such investments trade off at the margin in a predictable way with the alternative, third-party method of enforcing political bargains emphasized by Landes and Posner. Our analysis is rich in positive content as the empirical section of the paper will illustrate. The