Disclaimer. Don't rely on these old notes in lieu of reading the literature, but they can jog your memory. As a grad student long ago, my peers and I collaborated to write and exchange summaries of political science research. I posted them to a wiki-style website. "Wikisum" is now dead but archived here. I cannot vouch for these notes' accuracy, nor can I even say who wrote them. If you have more recent summaries to add to this collection, send them my way I guess. Sorry for the ads; they cover the costs of keeping this online.
Weingast and Marshall. 1988. The industrial organization of Congress; or, Why legislatures, like firms, are not organized as markets. Journal of Political Economy 96 (February): 132-68.
The authors seek to address this puzzle:
"Legislators pursue their reelection goals by attempting to provide benefits to their constituents (assumption 1). Acting alone, they cannot succeed (assumption 3). This, in combination with the diversity of interests they represent, generates gains from exchange and cooperation among legislators. But what institutions underlie--and enforce--this cooperation?"
So why are legislatures organized like firms, not markets? A legislature's internal organization serves the same purpose as a firm's: To keep transactions costs under control.
The literature gives us an old, inadequate model of legislatures: the vote trading ("logrolling") model. This model recognizes (correctly) that legislators can gain from a market in legislative votes/support (logrolling):
"By giving away votes on issues that have lower marginal impact on their district (and therefore on their electoral fortunes) in exchange for votes on issues having a larger marginal impact, legislators are better off. Whether or not they incorporate an explicit auction, models of the legislative market for votes have considerable appeal."
However, simply concluding that these incentives for vote trading will lead to actual vote trading is incorrect.
"A careful inspection [of this overly simple view of logrolling], however, reveals that this approach assumes away some of the deepest problems plaguing legislative exchange. It assumes, for example, that all bills and their payoffs are known in advance; that is, there are no random or unforeseen future events that may influence outcomes or payoffs."
"A variety of exchange problems arise because the value of today's legislation significantly depends on next year's legislative events. Members of future sessions face incentives different from those faced when the trade occurred and may seek, for example, to amend, abolish, or simply ignore previous agreements."
Because the vote trading model ignores institutions, it succumbs to a couple of problems.
Reputation (repeated interaction) is not enough to solve these problems.
The authors seek to replace the vote-trading model with an institutional model inspired by theories of the firm (see Coase 1937). The particular legislative institution they focus on is the committee system.
Committees are defined by three characteristics:
"Instead of trading votes, legislators in the committee system institutionalize an exchange of influence over the relevant rights. Instead of bidding for votes, legislators bid for seats on committees associated with rights to policy areas valuable for their reelection. In contrast to policy choice under a market for votes, legislative bargains institutionalized through the committee system are significantly less plagued by problems of ex post enforceability."
Research by the same authors
Research on similar subjects
Weingast, Barry (author) • Marshall, William (author) • Economics • Firms • Congress (U.S.) • Legislatures • Logrolling • Credible Commitment • Institutions • Origins of Institutions • Incentives in Politics