Tying the politicians’ hands: The optimal limits to representative democracy

• Date: 01 February 2020
• DOI: http://doi.org/10.1111/jpet.12388
• Author: Didier Laussel,Ngo Long
• Published date: 01 February 2020

J Public Econ Theory. 2020;22:25–48. wileyonlinelibrary.com/journal/jpet © 2019 Wiley Periodicals, Inc.

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Received: 27 November 2018

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Accepted: 21 June 2019

DOI: 10.1111/jpet.12388

ORIGINAL ARTICLE

Tying the politicians’hands: The optimal limits

to representative democracy

Didier Laussel

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Ngo Van Long

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1

CNRS, EHESS, AMSE, Centrale

Marseille, Aix‐Marseille University,

Marseille, France

2

Department of Economics, McGill

University, Montreal, Canada

Correspondence

Didier Laussel, CNRS, EHESS, Centrale

Marseille, AMSE, Aix‐Marseille

University, 13284 Marseille Cedex 07,

Marseille, France.

Email: didier.laussel@outlook.fr

Abstract

The citizen candidate models of democracy assume that

politicians have their own preferences that are not fully

revealed at the time of elections. We study the optimal

delegation problem which arises between the median voter

(the writer of the constitution) and the (future) incumbent

politician under the assumption that not only the state of

the world but also the politician’s type (preferred policy)

are the policy‐maker’s private information. We show that

it is optimal to tie the hands of the politician by imposing

both a policy floor and a policy cap and delegating him/her

thepolicychoiceonlyinbetweenthecapandthefloor.

The delegation interval is shown to be the smaller the

greater is the uncertainty about the politician’s type. These

results are also applicable to settings outside th e specific

problem that our model addresses.

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INTRODUCTION

Representative democracy may be best defined as a political system in which the power to

choose public policies is delegated to elected representatives (which we will call here

“politicians”for short). The main alleged advantage of representative democracy is that

representatives are able to specialize in policy‐making. This allows them to devote more time to

study the state of the world than ordinary citizens and thus to make better informed decisions.

Given the number and the complexity of public decisions to be taken in a modern society,

the advantages of representative democracy are so important that in one way or another all

modern democracies are basically representative democracies, with sometimes some elements

of direct or participative democracy like referendums and/or popular initiatives. It has,

however, long been recognized that this system has costs of its own. The main drawback of

representative democracy is that representatives are free, once elected, to promote their own

interests. Representatives cannot be bound by a binding mandate; indeed, they cannot commit

to implement specific policies once elected because it is impossible to write complete contracts

describing what the representatives should do in each of the multitude of circumstances that

could occur during their term of office.

The purpose of the present paper is to study the optimal constitutional limits, depending on

the relative precision of voter information regarding the optimal public policies and that

regarding the valence of incumbent politicians. We construct a specific delegation problem

which belongs to a class of principal–agent problems dealing with settings in which, according

to Amador and Bagwell (2013) “a principal faces an informed but biased agent, and contingent

transfers between the principal and the agent are infeasible.”Indeed, political settings are highly

relevant examples of this kind of problems where legal rules limit or even completely forbid

transfers to elected representatives. The type of delegation problem we analyze in our paper has

a novel feature. While our model and the existing models share a common feature, namely, the

agent (the incumbent politician) has private information about the state of the world, and her

preference is generally biased with respect to that of the principal,

1

our model differs from most

existing models (with the exception of Armstrong, 1995) by assuming that the principal does

not know the direction and magnitude of the agent’s bias.

2

The representative’s type as

determined by the electoral process is a random variable. (We do not model the electoral

process here; we simply treat it a black box to focus on the delegation problem.) Throughout

this paper we restrict attention to the case where there is more uncertainty about the state of

the world than about the politician’s preferences. For the sake of simplicity, we suppose that the

voting procedure is unbiased, in the sense that the expected representative’s type is the

median voter’s type.

Our contribution is to characterize the optimal delegation for the scenario in which the

representative’s bias is random while the electoral process is unbiased. We show that the policy

choice should then be delegated to the elected representative only within bounds: an upper

bound (policy cap) and a lower bound (policy floor). Cap and floor are imposed to avoid

extreme policy choices under delegation. Our main result is that the writer of the constitution

always finds it optimal to tie the hands of future politicians in this way. Furthermore, we show

that the interval of parameter values over which delegation occurs shrinks when the political

uncertainty increases. These results clearly apply to many other contexts, and not just to the

specific problem studied in our model.

To focus on the delegation issue when the future politician’s type is private information, we

have abstracted from a number of considerations. First, in our formal model, the incumbent is

free from re‐election concerns. We have not taken into account the fact that the desire to be

re‐elected might significantly mitigate the politician’s imperfect alignment of interests with

the median voter. Second, we have assumed that constitutional rules are sharply defined.

In practice, most rules are not fully spelled out, and need to be interpreted by a Constitution

Court (in the United States, the Supreme Court).

Our paper main’s insight is that the constitution shall rule out extreme policies or extreme

actions. In practice, of course, policy limits are subject to the interpretations of Constitutional

Courts (or the Supreme Court, in the case of the United States), and constitutions are subject to

amendments. In Germany, the Balanced Budget Amendment to Germany’s Basic Law was added

in 2009, stipulating that Germany’s federal government cannot run a structural deficit

1

The principal is here the writer of the constitution. Throughout the paper,we call him/her the median voter though this coincidence may be true only initially.

2

We thank a reviewer for referring us to Armstrong’s working paper of on this topic. In Section 2, we elaborate on the difference between Armstrong (1995) and

our model.

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LAUSSEL AND VAN LONG