A Comparative Theory of Legislation, Discretion, and Policy making Process (Huber

1
A Comparative Theory of Legislation, Discretion,
and Policy making Process (HuberShipan)

• Two crucial elements in the politicians-bureaucrat
  s interaction
• Policy Preference divergence less
  delegation, more details in statutes to
  micromanage policy implementation
• Technical complexity (and policy uncertainty) of
  the policy issues more delegation to
  utilize the bureaucracy expertise and vaguer
  legislation.

2
A Comparative Theory of Legislation, Discretion,
and Policy making Process (HuberShipan)

• Additional elements
• Legislative capacity that affects the costs to
  politicians of drafting detailed legislation
  (informational costs and decision making costs)
• Bargaining environment (the number of actors have
  the authority to propose or veto legislation)
• Non statutory features of political system that
  oblige the bureaucrats to behave consistently
  with politicians preferences.

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Model of Designing Legislative
StatutesAssumptions (1)

• Politician legislators who determine the level
  of policy discretion in a statute
• Bureacrat who implements the policy once the
  statute is adopted.
• Both actors are motivated by policy outcomes
• Policywhat is spelled out in legislation and
  during implementation
• Outcomeswhat happens in the real world once a
  policy is adopted and implemented.

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Model of Designing Legislative
StatutesAssumptions (2)

• The Bureaucrat is better informed than the
  Politician about the repercussions of particular
  policy choices
• Designing a statute is costly to the Politician.
  These costs depend on
• The extent to which the Politician limits
  discretion
• General legislative capacity
• The Bureaucrat have a choice about whether to
  implement the policy chosen by the Politician. If
  he/she is caught to implementing a policy that
  the Politician does not like, he/she will pay a
  price.
• If no policy change occurs, then the status quo
  is retained

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Model of Designing Legislative
StatutesEmpirical implication

• As it is empirically impossible to obtain
  minimally accurate measures of the actual
  preferences of bureaucrats H.S. assume that
  political actors at the apex of bureaucratic
  structures strongly influence the policy
  preferences of the bureaucrats. In the case of
  the Parliamentary democracies these political
  actors are the Cabinet ministers.

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Three Institutional environments, three Models

• Parliamentary model only one politician (median
  member of Parliament or leader of Majority party
  or pivotal member of a majority coalition)
  unilaterally establishing the contours of the
  legislation
• Veto model two politicians, one proposing, the
  other accepting or vetoing. Useful to understand
  logics in presidential systems
• Bicameral system two politicians with both
  proposal and veto power.

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Basic models stages

• Stage 1 the Politician decides whether to adopt
  new statute and the degree to which the statute
  actually limits the type of policies that the
  Bureaucrat can implement.
• In one dimension the Politician specifies the
  left and right boundaries on policy

Statute 2
Statute 1
L
R1
R2
Less delegation
More delegation
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Basic models stages

• Stage 2The Bureaucrat implements the policy (x).
  Bureaucrats knows which outcomes will result from
  which policy outcomes. The politicians dont. In
  one dimension the outcome (y) will be a mapping
  that is a specific direction and distance away
  from the original policy.
• If the distance is 0 and xy then Outcome
  Policy What happens if on the contrary the
  distancegt0 and y ?x?

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Basic models stages

• Stage 2. How policy uncertainty can affect the
  game ? Two scenarios
• The policy implemented by B. is also the policy
  outcome (x0y0)
• The outcome is 1 unit to the left of the policy
  implemented by B (x1gty1)

y1
x1
1 unit
x0y0
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
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Basic models stages

• Stage 2.
• Politician believes with some probability that a)
  or b) are true.
• Bureaucrat knows with certainty if a) or b) is
  true.

y1
x1
1 unit
x0y0
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
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Basic models stages

• Stage 2. First type of politicians mistake
• Suppose that the Politician L believes that (b)
  is very likely (x1gty1) and he/she allows the
  Bureaucrat B to implement x1. This requires a
  policy with a right boundary R1 (large
  delegation).
• Suppose, against Ls expectation that (a) is true
  (x0y0)
• B will implement its preferred outcome, far from
  L. Too much delegation!

y1
x1
1 unit
!
x0y0
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
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Basic models stages

• Stage 2. Second type of politicians mistake
• Suppose that the Politician L believes that (a)
  is very likely (y0 x0). He/she wants to
  constrain B by adopting a right- side boundary
  very close to L, such as R2 (Small delegation)
• Suppose, against Ls expectation that (b) is
  true (y2lt x2)
• 2. Suppose B complies with the statute by
  implementing x2 that will produce y2, a bad
  outcome for both actors. Too small delegation!
  However

!
y2
x2
1 unit
x0y0
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
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Basic models stages

• Stage 2. Why The Bureaucrat should have to comply
  with the statute even when the size of delegation
  does not allow to achieve the Politicians
  interest ?
• The Bureaucrat must decide whether to comply
  with the statute by choosing a policy that is
  within the boundaries set by the Politician.
• In the previous assumption the Bureaucrat who
  does comply with the statute cannot be punished.
  So the Bureaucrat can prefer to be unefficient
  but compliant.

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Basic models stages

• Stage 3. Non statutory factors (independent
  central banks, judges etc) can influence policy
  outcomes.
• Assumption After the Bureaucrats act one of two
  things occurs
• No non statutory factors intervene to influence
  the policy outcome
• These factors intervene shifting the policy
  outcome to the Politicians preferred policy. In
  this last circumstance if the Bureaucrat is
  disloyal he/she will be punished and must pay a
  cost
• Both the Politician and the Bureaucrat know the
  likelihood of these two events.

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The Bureaucrats implementation Decision
If the Bureaucrat knows that the policy outcome
will be one unit to the left of the policy that
is implemented, then he/she would like to be able
to implement a policy x1, that is one unit to the
right of his/her ideal point B and yields y1 as
an outcome. This possibility is given by the
statute 1 as statute 1 gives enough discretion
x2
1 unit
y2
y1
x1
1 unit
CB1
CB2
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats implementation Decision
What happens when the policy the Bureaucrat wants
to implement is outside the set of policies
allowed by the statute (for instance when the
statute 2 is adopted) ?
x2
1 unit
y2
y1
x1
1 unit
CB1
CB2
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats implementation Decision
If he/she adopts his/her most preferred policy x1
he may be caught and sanctioned, since this
policy is outside L-R2 (statute 2) Alternatively
he/she can adopt the optimal safe policy x2
x2
1 unit
y2
y1
x1
1 unit
CB1
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats implementation Decision
In order to decide which policy to implement, the
Bureaucrat will compare (nc) the net benefits
from non compliance to (c) the benefits he would
obtain from simply (and safely) complying with
the statute. If the (c)gt(nc) the Bureaucrat will
comply with the law.
x2
1 unit
y2
y1
x1
1 unit
CB1
CB2
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats implementation Decision
The compliance boundary (CB) is the point at
which the combined benefits and costs of non
compliance are equal to the benefits of
compliance. B will be indifferent between
implementing a law that is a the compliance
boundary and implementing a policy that yields
the Bureaucrats preferred policy but that also
risks sanction when the right boundary of the law
, R, will coincide with CB.
x2
1 unit
y2
CB2

• Compliance boundary depends on
• Influence of non statutory factors
• Magnitude of sanctions
• Relationship between policies and outcome. If
  policy and outcome coincide then CB will be more
  to left.

L
R2
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
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The Bureaucrats implementation Decision
If sanctions or the probability of getting caught
are large, the compliance boundary CB can be far
to the left of B , for instance in CB1. In these
circumstances both statutes 1 and 2 are right
boundaries (R1 and R2) to the right (above) of
CB1. Bureaucrats prefer to comply with both
statutes than implementing a policy that yields B
but also risks sanctions.
x2
1 unit
y2
CB1
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats implementation Decision
When the compliance boundary depicts a situation
where sanctions or probability of getting caught
(or both) are quite low as in CB2, then the
bureaucrat B will comply with Statute 1 with
right boundary R1 (he can obtain B) but he wont
comply with Statute 2 , which has a right
boundary R2 to the left of CB2. (too small
delegation!)
x2
1 unit
y2
y1
x1
1 unit
CB2
L
R2
R1
B
Politicians preferred outcome
Bureaucrats preferred outcome
Statute 2
Statute 1
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The Bureaucrats Implementation Decision

• If the statute allows sufficient discretion
  (right boundary above, to the right of CB) the
  Bureaucrat will implement the policy that he most
  prefers among the policies that comply with the
  statute
• If the statute limits discretion too much (right
  boundary below, to the left of CB) the Bureaucrat
  will take a chance and risk sanctions by
  implementing the policy that yields his preferred
  outcome
• Bureaucrat is more likely to follow the
  Politicians instructions if
• 1) the political system is likely to catch non
  compliant behaviour
• 2) If the potential non compliant behaviours
  benefits are low

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The Politicians optimal statute in certain
circumstances

• For the politician will never be optimal to adopt
  a statute that the Bureaucrat is certain to
  ignore (when the right boundary R is to the right
  the CB). Adopting a statute that limits
  discretion is costly. The politician never would
  like to pay uselessly such a cost. The Politician
  would prefer to adopt a vague low cost statute
  that allows the Bureaucrat to implement the
  policy he/she most prefers than adopt a
  low-discretion, high-cost statute that results in
  exactly the same policy outcome.
• In other terms if for the disloyal Bureaucrat the
  probability to be caught is zero or the price to
  pay is null, then limiting the discretion by a
  detailed law does not make any sense.

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Legislation and Discretion in the Parliamentary
Model

• Politician must pay a cost to adopt a
  low-discretion law this cost is a function of
  legislative capacity.
• Policy conflict (between Politicians and
  Bureaucrats) and legislative capacity interact to
  influence legislative statutes (and their level
  of discretion)
• Simplifying assumptions
• No policy uncertainty
• No nonstatutory factors (therefore no CB)
• Bureaucrats will comply with the statute

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Legislation and Discretion in the Parliamentary
Model

1. B1, B2, B3 potential policy preferences of the
   Bureaucrats
2. c1, c2, c3 etc different levels of costs which
   correspond different levels of legislative
   capacity . Less cost , more legislative capacity.
   c1 corresponds to the highest capacity c6
   correspond to the lowest capacity

Threshold
c4
c5
c6
c1
c2
c3
L
B1
B2
B3
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Legislation and Discretion in the Parliamentary
Model

• Imagine B1 and c1
• Policy benefit of low discretion Statute is
  -L-L-c1 (the maximum of utility is of course
  0)
• Policy benefit of high discretion Statute
  -L-B1
• Therefore the condition to have a low discretion
  Statute is c1gt-L-B1 namely L-B1gtc1. Is it
  respected ? Yes
• 2) Imagine B1 and c2
• Policy benefit of low discretion Statute is
  -L-L-c2
• Policy benefit of high discretion Statute
  -L-B1
• Therefore the condition to have a low discretion
  Statute is c2gt-L-B1 namely L-B1gtc2. Is it
  respected ? No. in fact L-B1ltc2
• Holding policy divergence fixed, as costs
  increase, namely as the legislative capacity
  decreases, the adoption of low discretion laws
  becomes less likely

Threshold
c4
c5
c6
c1
c2
c3
L
B1
B2
B3
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Legislation and Discretion in the Parliamentary
Model

• Imagine c2 and B1 The policy benefit from the
  low discretion statute is smaller than the policy
  benefit from an high discretion statute
• c2lt -L-B1 namely c2gtL-B1 a small increase
  of the policy divergence does not matter.
• 2) Imagine c2 and B2 now
• c2gt -L-B2 namely c2ltL-B2 The policy
  benefit from the low discretion statute is
  greater than the policy benefit from an high
  discretion statute discretion statute
• Therefore holding legislative capacity fixed, an
  increase in policy conflict from B1 to B2 leads
  to adoption of a low-discretion statute

Threshold
c4
c5
c6
c1
c2
c3
L
B1
B2
B3
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Legislation and Discretion in the Parliamentary
Model

1. Legislative capacity and policy conflict can have
   an interactive effect. May exist a threshold of
   policy conflict that must be surpassed before the
   legislative capacity can influence discretion in
   legislation or may exist a threshold of
   legislative capacity before the policy conflict
   can influence discretion in legislation.
2. two distribution of legislative capacities (two
   cross-country dataset). Distr.1 has a much wider
   range of legislative capacities than Distr.2

Threshold
c4
c5
c6
c1
c2
c3
L
B1
B2
B3
Distribution 1 of Legislative Capacity
Distribution 2 of Legislative Capacity
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Legislation and Discretion in the Parliamentary
Model

1. If you consider Distribution 1 it would be
   unlikely to uncover direct effects of policy
   conflict and legislative capacity on discretion
   because many of the political systems have
   insufficient capacity to ever adopt a
   low-discretion statute.
2. As the costs of adopting low discretion laws
   decrease from c6 to c5 or even to c4, nothing
   happens
3. As the costs are above the threshold, then
   changes in policy conflict from B1 to B2 or to B3
   would have no effect on the adoption of
   low-discretion statute

Threshold
c4
c5
c6
c1
c2
c3
L
B1
B2
B3
Distribution 1 of Legislative Capacity
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Legislation and Discretion in the Veto model

• A politician (the Legislature) adopts a policy .
• Another Politician (the President) has a veto
  prerogative.
• Additional simplifying assumption
• President and Bureaucrats have the same
  preferences

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Legislation and Discretion in the Veto model

• In general the same results of the Parliamentary
  model.
• Relative value of low discretion statutes
  increases
• 1) As policy conflict between Politician and
  Bureaucrat increases
• 2) As Legislative capacity increases
• 3) As non-statutory factors become less reliable.
• However in addition
• Status quo position matters as now gridlock is
  possible
• The threat of veto can never lead to less
  discretion but sometimes to more discretion than
  we would find in the Parliamentary model.

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• For simplicity assume that
• All the players in the model know that the final
  policy outcome will be the same as the policy the
  Bureaucrat implement (xy)
• The Politician (the Legislature) has legislative
  capacity to adopt any statute he/she wishes (c?0)
• The Bureaucrat will comply with any bill.
• 2) Without any veto a Politician could implement
  a low-discretion bill with a left and right
  boundary at L, his most preferred policy. (LR1).
  
• 3) The President P would realize that he prefers
  the status quo Q to L and would veto such a bill.
• 4) The politician L must give the Bureaucrat
  leeway to implement a policy that the President
  will accept .For example a policy with an upper
  bound at R2. The Bureaucrat would implement R2
  and P would not veto anymore..

LR1
PB
Q
R2
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Legislation and Discretion in the Bicameral
Model (with veto)

• Both Chambers (Upper and Lower) can make policy
  proposals and they do sequentially
• If the first proposal is met with a
  counterproposal by the other house, then the two
  chamber must pay a bargaining cost associated
  with the opportunity cost of delay .

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• For simplicity assume that
• Bargaining cost of a counterproposal c
• UBP
• Neither Chamber pays any other cost of making a
  proposal
• The Upper Chamber U has made a policy proposal
  and the Lower Chamber L now has to decide whether
  to pay the bargaining costs c of making a
  counterproposal.
• The best proposal the Lower Chamber L can make is
  R2 because of the presidential veto. However such
  a proposal entails also a cost c
• Upper chamber can take advantage of this
  situation and propose R3 as an upper bound on
  policy since the beginning. Upper chamber has
  extracted the bargaining cost from the Lower
  Chamber in the form of increased legislative
  discretion.
• When Bicameral bargaining is necessary, the
  discretion in the statutes cannot decline and
  often will be greater.

c
LR1
PUB
Q
R2
R3
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