Delegating Powers: A Transaction Cost Politics Approach to Policy Making under Separate Powers (Political Economy of Institutio

In this path-breaking book, David Epstein and Sharyn O’Halloran produce the first unified theory of policy making between the legislative and executive branches. Examining major US policy initiatives from 1947 to 1992, the authors describe the conditions under which the legislature narrowly constrains executive discretion, and when it delegates authority to the bureaucracy. In doing so, the authors synthesize diverse and competitive literatures, from transaction cost and principal-agent theory in economics, to information models developed in both economics and political science, to substantive and theoretical work on legislative organization and on bureaucratic discretion.


Summary: Already Classic Work Based on Incomplete Contracts Theory
Rating: 4

This work is already a classic, and deservedly so. All the sections are excellent or almost excellent: the literature review is well presented, the theoretical model and the hypotheses are spelled out as clearly as one could wish, and the empirical tests are conducted accurately. In addition, from a pedagogical point of view, all steps are clearly defined and explained, including when game-theoretic and statistical issues are included. The results (chiefly, that when the same party controls the two branches of government, the median voter in Congress will accept delegating more powers to the administration than when different parties control the two branches), may not be particularly counter-intuitive; nevertheless, they are solid, and they are demonstrated.

The only reason why I would not give this book a 5-star is because of some confusion in the theoretical argument: while the book announces a transaction cost-economising logic of delegation, it actually develops a hybrid model using incompatible theories. More specifically, the authors use a transaction cost motivation, but then work in it some incomplete contracts theory as well as some principal-agent concepts found in adverse selection models. In my view, Transaction Cost Economics (i.e. the ideas of Coase, Schumpeter, and Williamson) comes at a higher price than just finding a pooling or a separating equilibrium. Actually, the two approaches may differ in too many ways that are not even presented (let alone worked through) in the book. To the extent that this is so, one is left wondering about the consistency of the theoretical model (UNANSWERED QUESTIONS INCLUDE: If Congress and political parties are organizations who are their own ultimate courts of appeal, then why does so much depend on the individualistic median voter? If actors are semi-strongly rational, what are the implications in terms of their risk posture, and in terms of the information they use? If transaction cost economics allows a huge part of the game to be played in the implementation phase, why is there nothing about it in the book?). Seen under that light, the positive empirical results are more difficult to interpret … unless one re-writes the title and the first chapters as “Delegating Powers: An Incomplete Contracts Politics Approach…”.



Summary: A Good transaction
Rating: 4

Epstein and O’Halloran’s work is a refreshing analysis of delegation under the separation of powers. Their formal analysis captures many aspects of recent research and combines them into a simple yet concrete theory. They have an extensive yet concise literature review and develop an empirical model that well demonstrates their theory. The only deficiency, and a small on at that, is their lack of analysis regarding the crafting of legislation and the politics involved. They note a decrease in delegation when one party controls Congress and the other the White House (which is suspiciously statistically significant) however don’t discuss various reasons why this might be true from a political standpoint. For example, during these periods you’d expect less delegation on issues Congress can win, but more delegation as a concession to the President on issues it has a hard time winning. Overall, though, this is a great work.