Cox and McCubbins: The Institutional Determinants of Economic Policy Outcomes

Cox and McCubbins. 2001. The Institutional Determinants of Economic Policy Outcomes. In Presidents and Parliaments, Haggard and McCubbins, eds. Cambridge: Cambridge University Press.

In Brief

Political institutions are diverse in different democracies (i.e. they define differing sequences of principal-agent relationships). These differences account for diversity in economic outcomes (public/private goods, growth, credibility of long-term policy commitments). The key institutional variations (X) can be understood as veto players, which are created by (1) unified vs divided purpose and (2) unified vs divided power.

Dividing POWER (X1) in a society with divided PURPOSES (X2) creates many veto players, where deadlock or balkanization are likely unless many side payments are made to those who lose as a result of Pareto-efficient policy changes. Having more or fewer (institutional) veto players doesn't mean a whole lot when preferences are fairly united--it is when preferences are highly diverse that having too many (or too few) veto players is a major problem. (see last paragraph in text)

Analytic Approach: Three Steps of Delegation

Usually, democracies have at least three delegations. (1) People delegate to a national legislature and executive, often via a written constitution. The principals retain some control over their agents by means of elections and constitutional rules. (2) The second delegation involves internal organization by the executive and legislature--which ministerial positions are created, how the agenda is controlled, etc. Constitutional rules come into play here too (e.g. can the executive dissolve the legislature?). (3) The legislative and executive delegate to bureaus, agencies, and so on to enforce the laws. In this case, "Administrative procedures and law [usually not the constitution] set the terms of the delegation."

Variables and Hypotheses

Outcomes (Y) to be Explained: Tradeoffs

Ys: TRADEOFFS RESULTING FROM BUREAUCRATIC CHECKS AND BALANCES

Delegations can be regulated in many ways, but the most common form of delegation involves "setting up ambition to counter ambition." This form of control over agents entails trade-offs, however. Moreover, the "structure of constitutional principal-agent relationships affects the form of public policy."

There are two main tradeoffs:

• Y1: Decisiveness vs resoluteness (what others call policy stability). In other words, a tradeoff between having the ability to "change policy and having the ability to commit to policy." This depends on the number of veto players (X). Getting too close to either extreme (too many or too few veto players) is bad.
• Y2: Tradeoff btw the "private- and public-regardedness" of policy.

Explanatory Variables (X): Veto Players

See Table 2.3 (pg 61) for summary of the argument. In essence: Institutional divisions of power (X1) can include bicameralism, presidentialism, federalism, judicial review, etc. Institutional divisions of purpose (X2) can stem from "the inherent diversity of opinion within a nation's society [or] from the incentives that the electoral system presents to combine those diverse interests into many or few political organizations." (On the latter point, see also Cox 1987).

The Argument and Hypotheses

From Table 2.3: (1) Unified purpose + unified power --> decisive govt (e.g. UK). (2) Unified purpose + separated power --> decisive (e.g. Mexico). (3) Separated purpose + unified power --> decisive (e.g. Japan, Czech). (4) Separate power + separate purpose --> indecivisive (e.g. Argentina, Chile, US, Poland).