Political Control of the Bureaucracy – I

1. Political Control of the Bureaucracy – I David Epstein EITM Michigan June 18-19, 2003

2. The Problem: Base Closing • Near the end of Cold War – Government wanted to close some military bases • Congress had blocked similar action after the Vietnam War • Required full EITM statements for any closings • Even then, hard to avoid Congress’ retaliating • But now savings were big  $2 to $5 billion per year • Sentiment was growing for some action

3. The Solution: BRAC Attack • Congress responded by creating the Base Realignment and Closing Comm. • Independent Regulatory Agency • 12 members, chosen by Sec’y of Defense • Recommended closings and realignments • Sec’y of Defense had to accept or reject entire list without amendments • If accepted, Congress had 45 working days to pass a joint disapproval resolution • Subject to veto, with no amendments possible

4. The Puzzle: Why this solution? • Congress could have: • Ignored the problem • Passed legislation by itself • Delegated to the Secretary of Defense directly, rather than the commission • Why did it choose this particular form of delegation, and to what end? • Note: Craig and BRAC-proofing in Idaho

5. Objectives • Walk through the genesis and execution of our book, Delegating Powers • Background literatures and early theory/tests of delegation • Discovering the idea of the book • Executing theory/tests/implications • Also look at how literatures develop as conversations on particular topics • Research = inserting yourself into stream

6. Game Plan • Literature(s) Review of Policy Making • Legislative Organization • Delegation and Constraints • Examples of theories & tests • DP Theory • Background: Transaction Cost Economics • Review model in detail • Derive predictions • DP Empirics • Look at tests of hypotheses (homework)

7. Legislative Org. Literature

8. Legislative Org. Literature SustainingLogrolls

9. Legislative Org. Literature SustainingLogrolls Committees

10. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees

11. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation

12. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation Committees

13. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation Committees Majoritarian Median Voter

14. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation Committees Majoritarian Median Voter Passing theParty Agenda

15. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation Committees Majoritarian Median Voter Passing theParty Agenda Committees

16. Legislative Org. Literature SustainingLogrolls Committees UniversalLogrolls Committees AsymmetricInformation Committees Majoritarian Median Voter Passing theParty Agenda Committees PartisanLogrolls Majority Party Caucus

17. Legislative Org. Literature • Theories disagree on fundamental problem

18. Legislative Org. Literature • Theories disagree on fundamental problem • All agree that committees are the solution

19. Limits of Existing Theories • These may all capture elements of reality • But as stated they must be incomplete • Legislators in all countries face similar problems in getting reelected • Yet not all have favored committees at the expense of parties • Therefore, our system of strong committees must derive from broader governmental system, including SOP

20. Delegation Literature: Two Major Strands • Why delegate? • Save time/Reduce workload • Take advantage of agency expertise • Protect special interests • Shift the blame • Who controls delegated authority? • Transmission Belt Theory (legal) • Bureaucracy (abdication) • Congress (congressional dominance)

21. P A X X S H Bureaucratic Drift • Control drift by: • Ex-ante Controls • Deck Stacking • Autopilot • Ongoing Controls • Fire Alarms • Police Patrols

22. Delegation Theory & Testing • Move to formalize these theories in early 1990’s • Lupia & McCubbins • Bawn • Epstein & O’Halloran, etc. • Led to: • Richer, more nuanced views of delegation • Deeper insight into particular policy areas • Revised views of related literatures

23. Example I: Delegation & Trade Policy • Analysis of trade policy had been mainly economic, international in focus • Economic gains from free trade one of the central tenets of economic theory • International institution (GATT) as vehicle for gradual lowering of worldwide tariffs • Led by US in post-war era • But trade authority in US is delegated • And terms of delegation have changed • Implies a more political, domestic angle

24. Trade Policy History • Congress has ceded the executive substantial authority in trade policy • 1934 Reciprocal Trade Agreement Act (RTAA) • 1962 Trade Expansion Act • 1974 Trade Reform Act • Terms of delegation revised periodically • Sometime Congress delegates broad authority • E.g., RTAA gave bilateral negotiating powers • Sometimes Congress limits this authority • E.g., fast track proceduresrequire Congress to vote

25. Basic Delegation Model • Actors: Congress (C) & President (P) • Preferences ui(x) = -(x-xi)2 on X=R1 • xC=0, xP>0 • Outcomes x=p+ , ~U[-R,R] • So role for executive expertise • Order of Play: • Congress sets policy pC, discretion d • President observes  • President chooses p s.t. |p- pC|  d

26. Basic Delegation Model • In equilibrium: • President moves policy as close to xP as possible, given d • Congress sets pC=0 • Congress sets d=R-xP if xP<R, 0 otherwise d d xC xP -R R

27. – – Divided Gov’t Delegation Tariff From Theory to Test • Theory: Divided government leads to less delegation. • President has less protectionist preferences than median member of Congress • So less delegation leads to higher tariffs

28. Major Postwar Trade Acts Major U.S. Trade Legislation, Divided Government, & Delegation, 1948-1992

29. Delegation and Tariffs • Want to estimate a model like: • Tarifft = a + b1*Delegt + b2*Econt • But we can’t measure delegation directly • Can only measure change from year to year • So instead, estimate: • DTarifft = a + b1*DDelegt + b2*DEcont • Same coefficients, so tests are the same • Constant is now trend over time

30. Least Squares Estimates of the Effect of Delegation on the Tariff Dependent Variable: Dlog(TARIFF) Note: t-statistics in parentheses. * a < .10. ** a < .05. Effect of Delegation on Tariffs

31. Example II: Delegation, Fire Alarms & Committees • Fire Alarms/Police Patrols proved to be a useful prism for analysis • But it’s clearly not an equilibrium • If every fire alarm were answered, then there would be lots of false alarms • So, do a strategic version of the model • Has spillover implications for committees • As we saw, literature flunks comparative test • So predict degree of committee outliers

32. Strategic Oversight Model • 3 Players: Floor, Committee, Agency • Ui(x) = -(x-xi)2 , i{F,C,A} • xF = 0, xA > 0 • Incomplete information: x = r +  •  ~ U[-1,1], status quo x0 =0 • Order of play: • Agency proposes regulation (r) • Committee recommends accept or reject (m) • Floor overturns policy or lets it stand ()

33. Strategic Oversight Model • 3 Players: Floor, Committee, Agency • Ui(x) = -(x-xi)2 , i{F,C,A} • xF = 0, xA > 0 • Incomplete information: x = r +  •  ~ U[-1,1], status quo x0 =0 • Order of play: • Agency proposes regulation (r) • Committee recommends accept or reject (m) • Floor overturns policy or lets it stand () Know 

34. Strategic Oversight Model • 3 Players: Floor, Committee, Agency • Ui(x) = -(x-xi)2 , i{F,C,A} • xF = 0, xA > 0 • Incomplete information: x = r +  •  ~ U[-1,1], status quo x0 =0 • Order of play: • Agency proposes regulation (r) • Committee recommends accept or reject (m) • Floor overturns policy or lets it stand () Know  Sees r, m

35. Equilibrium Properties • Equilibrium depends on the value of xC: • xC >xA • No info transmission due to collusion • xF <xC <xA • Noisy signaling ranges, like Crawford-Sobel • xC <xF • r and m together perfectly imply  (F informed) • Agency modifies its proposal to ensure Committee’s support (just like fire alarms) • Floor prefers xC =-xA (so still some slippage)

36. Committees as Contrary Outliers Ideal Point A C = F Like Romer-Rosenthal when C=F Status Quo

37. Committees as Contrary Outliers Ideal Point A C = F Accommodation Like Romer-Rosenthal when C=F Status Quo

38. Committees as Contrary Outliers Ideal Point A C = F Accommodation Status Quo Like Romer-Rosenthal when C=F Status Quo

39. Committees as Contrary Outliers Ideal Point Agency Ideal Point A C = F Accommodation Status Quo Like Romer-Rosenthal when C=F Status Quo

40. Committees as Contrary Outliers Ideal Point A C = F Now change the committee’s ideal point… Status Quo

41. Committees as Contrary Outliers Ideal Point A F C … to be slightly contrary to the agency. Status Quo

42. Committees as Contrary Outliers Ideal Point A F C This lengthens the accommodation range… Status Quo

43. Committees as Contrary Outliers Ideal Point A F C … and the status quo range. Status Quo

44. Committees as Contrary Outliers Ideal Point A F C Overall, outcomes that were formerly at A … Status Quo

45. Committees as Contrary Outliers Ideal Point A F C Overall, outcomes that were formerly at A … Status Quo

46. Committees as Contrary Outliers Ideal Point A F C … are now closer to F, making the floor better off. Status Quo

47. Committees as Contrary Outliers Ideal Point A F C This process continues until C = -A. Status Quo

48. Committees as Contrary Outliers Ideal Point A F C Now neither deviation improves the floor’s utility. Status Quo

49. Committees as Contrary Outliers Ideal Point A F C So the floor is best off when C=-A. This leads to… Status Quo

50. Committees as Contrary Outliers Ideal Point A F C So the floor is best off when C=-A. This leads to… • Committees will move contrary to changes in executive preferences Status Quo