Industrial Organization Congress

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The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organizedas MarketsAuthor(s): Barry R. Weingast and William J. MarshallSource: The Journal of Political Economy, Vol. 96, No. 1 (Feb., 1988), pp. 132-163Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/1830714 .

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The IndustrialOrganizationof Congress;or, WhyLegislatures,LikeFirms,Are NotOrganizedas Markets

Barry . WeingastStanford niversity

William . MarshallGoldman, achs and Company

This paper providesa theory f legislative nstitutionshatparallelsthetheory fthe firm nd thetheory f contractual nstitutions.ikemarket institutions,egislative nstitutions eflecttwo key compo-nents:the goals or preferencesof individuals here,representativesseekingreelection)and the relevanttransactions osts.We presentthreeconclusions.First,we showhow the legislative nstitutionsn-force bargainsamong legislators. econd, we explainwhy,given thepeculiarformof bargainingproblemsfoundin legislatures, pecificformsof nonmarket xchange prove superiorto market xchange.Third, our approach shows how the committeesystem imitsthetypesof coalitionsthatmay form on a particular ssue.

The organization of Congress meets remarkably wellthe electoral needs of its members. To put it anotherway, if a group of planners sat down and tried to designa pair of American national assemblies with the goal ofserving members' electoral needs year in and year out,

We gratefully cknowledge the helpful commentsof Lee Alston,Harold Demsetz,Thomas Gilligan, Tom Hammond, Douglass North,Michael Riordan, Brian Roberts,Kenneth Shepsle, and George Stigler.We also thankElizabeth Case forher editorialassistance.Weingastthanksthe National Science Foundationforpartial upport GrantSES-86 17516).[Journal fPolitical conomy, 988, vol. 96, no. 1]?) 1988 by The University f Chicago. All rightsreserved. 0022-3808/88/9601-0010$01.50

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INDUSTRIAL ORGANIZATION 133theywould be hard pressed to improveon what exists.[MAYHEW 1974, p. 81]

The new economics of organization holds that explicitmarketex-change is not the universally deal institution ora transaction.Themostsuccessfulapplicationof thisapproach, the theoryof thefirm,attempts o explain, for example, why some transactions ake placewithin firmunder certaincircumstances nd across a market e.g.,betweenfirms)under others.' This theory lso focuseson the struc-ture of the corporation,notablythe separation of ownership andcontrol (Alchian and Demsetz 1972; Jensen and Meckling 1976;Fama 1980; Fama and Jensen 1983; Demsetz and Lehn 1985; Gross-man and Hart 1986). With fewexceptions,however, thas not consid-ered other typesoforganizations, uch as publicbureaucracies,polit-ical parties, or legislatures.2The purpose of thispaper is to extendthis heory o the studyof politicalorganizations nd, in particular, oexplainthe pattern f institutions ithin he egislature hatfacilitatesdecision making.Studies ofpublicpolicy-makingmphasizethe dependence ofpolit-ical decisionson interestgroup and constituency articipation.Whilethisapproach is consistentwithoutcomes in manyindividual policyareas, it fails to explain how so manydiverse interests re providedwith policybenefits imultaneously.A huge varietyof interests rerepresented n the legislature, nd almostnone is representedby amajority.For most interests o gain policybenefits, epresentativeswithdifferent onstituentsmustagree to exchange support.Put an-other way, the diversityof interests creates gains from exchangewithinthe legislature.While the literature mplicitly ssumes thatthese gains are captured, it fails to explain how trades are accom-plished and enforced. If public policy reflects series of bargainsamong various interests,how are these bargains maintained overtime? As we knowfrom the modern literature n contracts, he an-swer to thisquestionis not alwaysstraightforwardincenot all agree-mentsare enforceable.

' Typical applicationsfocuson the various formsof verticalrelations Coase 1937;Williamson1975, 1985; Klein,Crawford, nd Alchian 1978). Besides thesemore gen-eral treatments f vertical ntegration, hereare excellenttreatments f otherforms f'verticalrelations uch as franchisingRubin 1978), resale pricemaintenance Gilligan1986), and long-term ontractingJoskow 1985).2 The exceptions ncludeGoldberg (1976), Moe (1984), Weingast 1984), MillerandMoe (1986), Tirole (1986), Milgromand Roberts (1987), and some of the topics inNorth 1981). The programforwideapplicationof theapproach is discussed nJensen(1983). Fama and Jensen 1983) extendtheanalysisofmarket rganizations o includesome nonprofit nes, though theiranalysisonly begins the studyof this importantcategory f widelydifferent rganizations.


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134 JOURNAL OF POLITICAL ECONOMYTo address these issues, we develop a theoryof legislative nstitu-tions thatparallels the theoryof the firm nd the theoryof contrac-tual institutions.Like market institutions, egislative institutionsreflect wokey components: thegoals and preferences findividuals,here legislatorsseeking reelectionfrom theirconstituents,nd thetransactions osts thatare induced by imperfectnformation, ppor-tunism, and other agency problems. But the enforcementmecha-nisms underpinning exchange in marketsettingsare typically n-available to or inappropriate for the legislature.Solutions to con-tractual problems thatarise in the market e.g., vertical ntegration)do not directly ranslate nto solutions to similar problemsfound in

legislatures.We show how the legislativenstitutionsnforcebargainsamong legislators nd why, given the peculiar bargaining problemsfound in legislatures, specific nonmarket exchange mechanismsprove superiorto marketexchange. Froma policy perspective, heseinstitutions ave important mplications.Durability f bargains eadsboth to the durability f policies that thesebargains are designed toimplement nd to the coalitionsupportingthese policies. Our modelthushas important mplicationsfor coalitionformation nd mainte-nance.Section summarizesthe new economicsoforganization.Section Ibegins the analysis by presenting everal assumptionson whichourapproach is based. SectionII describesmodels of themarketforvotesand focuseson enforcementproblems.Section IV presentsour the-ory of legislativenstitutionsnd suggestswhythese nstitutionsolveproblemsthat arise in simplemarkets.SectionV providesempiricalevidence on several propositionsthat follow fromour model. Thisevidence, froma variety of contextsinvolving the U.S. Congress,providessignificantupport for the model. Section VI derives somecomparativestaticresults thatprovide some additional evidence forthe approach and suggest some importantavenues for additionaltests. A discussionsection, Section VII, follows n whichwe explorealternative xplanationsforenforcingegislative xchange alongwithpossibleextensionsof our approach.

I. The New Economics of OrganizationThe theory f the firm olds thatproductionand exchangetake placethrough nstitutionscontractualpatterns, rganizationalforms)thatreflect he specificpattern of transaction osts found in trade. Theemphasisof this theory s on how specificorganizationalor contrac-tualformsreduce these costs.Some ofthe mportant esultsfrom hisliteraturewill prove useful in our discussionof legislatures.The seminal paper in this tradition Coase 1937) assertsthatthe


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INDUSTRIAL ORGANIZATION 135firm merges not simply o take advantage of specializationor econo-mies of scale but to avoid the costs of using markets and the pricesystem: The main reasonwhy t s profitable o establish firmwouldseemto be thatthere s a cost of using the price mechanism.The mostobvious cost of organising' production throughthe pricemechanismis that of discoveringwhat the relevant prices are" (p. 390). In otherwords, the firmprovidesa set of contractualmechanisms hat substi-tutesfor the pricemechanism, n part because the pricemechanism stoo costly o use in certain circumstances.3A major theme in the literature s that the institutions f the firmare designed, in part, to reduce the costs of assuringcontractualper-formance. n the words of Williamson 1985, pp. 48-49), "Transac-tionsthat re subject toexpostopportunismwillbenefitfappropriatesafeguards can be devised ex ante. Rather than reply to opportunismin kind, therefore, hewise [bargaining party] s one who seeks bothto give and receive 'credible commitments.' ncentivesmay be re-aligned, and/or uperiorgovernance structureswithinwhichtoorga-nize transactionsmay be devised." This principle s one ofthe centrallessons of this body of work; it underlies much of institutional ndorganizational design.4The costs of assuring contractualperformance re high n a varietyofcircumstances. wo settings oncernus. The first enterson prob-lems of observability Holmstrom 1979) or measurement (Barzel1982), for example, when it is difficult o separate out an agent'scontribution rom thatof random events or when an agent has pri-vate information bout, say, the qualityof the good being sold. Im-perfect observability enerateswell-knownproblems such as moralhazard, adverse selection, nd shirking hat plague simplespotmar-ketexchange.A large part of the literature pellsout ex antecontrac-tual formsdesigned to mitigate hese problems. The second settingcenterson incompletecontracts,forexample, when it is impossible(or too costly)forcontractingparties to plan for all possible contin-gencies. Several scholars have studiedthesesettingsnd theattendantproblemsofex post opportunism hat rise when ex post ncentives fthe bargaining parties are inconsistentwith performingex anteagreements (e.g., Klein et al. 1978; Kreps 1984; Williamson 1985;Grossmanand Hart 1986). Those works lso study variety fmecha-nisms hat re used tomitigate hese problems, ypicallyomeform fverticalrelations.

3See also the discussion in Cheung (1983).4Virtually every paper cited on the theory of the firmmakes thisargument.Forparticulardetails, see, e.g., Barzel (1982), Fama and Jensen (1983), Kreps (1984), orWilliamson 1985).


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136 JOURNAL OF POLITICAL ECONOMYWe emphasize that the literature s not simply n analysisof con-tractualfailures.As suggested by Williamson n the quote above, expost problems lead to the design of organizationalforms o mitigatethese problems. The literatureon vertical ntegration, or example,argues that this organizational form is largely an endogenous re-sponse to ex post contractualproblemsof the sort we have ust men-tioned. This example illustrates he argumentthat a particularformof internalorganizationproves superior to marketexchange.A major limitation f the new economicsof organization s that tremains largely tied to market settings.Though the principlesareobviously more general (as clearly articulated in Jensen [1983] or

Milgrom and Roberts[1987]), applications to other settings re justbeginning. ndeed, developing a general theoryof organizationsre-quires effectivelypplying this theory to typesof organizationsbe-yond those included in the set studiedto generate it.II. Representatives and Their ConstituenciesIn thispaper, we take up this hallengeby showinghowthis pproachilluminatesphenomena that take place in legislatures.The perspec-tivedeveloped in this paper rests on three assumptions.

ASSUMPTION 1. Congressmenepresenthe politicallyesponsive)nterestslocatedwithin heirdistrict.-Whilerational ignorance pervades thepolitical system, hatdoes not implythatthe interests f constituentsare irrelevant orrepresentatives r thatthe latter re freeto pursuetheir own interests.Rather, rational ignorance underpins interestgroup advantage in politics. Because most voters have only a dimawarenessof an incumbent's ctions,rational gnorancebiases polit-ical response toward those who do form mpressions.Thus interestgroups, because they have greater individual stakes in particularissues, monitor congressmen and provide them with information.Groups also mobilizetheirmembers n supportof friendly ongress-men.Interestgroups are not uniformly istributed.They typically aveconcentrationsof voters in particular locations. Farm organizationmembers, for example, are concentrated n specificdistricts; o tooare consumersoffood stamps and membersof welfarerights rgani-zations.The elderly, o take another example, have a disproportion-ate presence in Florida and Arizona (medicare and social security)while miners re found in West Virginia,Pennsylvania, nd southernIllinois (mine safety, lack lung disease).In the competitionfor nterestgroup support, specificrepresenta-tiveshave a comparativeadvantage. The lack ofcompletefungibilityof votes implies that egislators re advantaged in attractingupport


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INDUSTRIAL ORGANIZATION 137from nterest roups located intheirdistrictsee Denzau and Munger1986). This advantage arises because service to local interests ttractsboth votes and organized resources for the district's epresentative.Service to thisgroup by an outsider, ncontrast, ttracts nlythe atterand may lose votes.Electoral competition nduces congressmen, t least in part, to rep-resentthe interests f theirconstituents. ecause groups are notuni-formlydistributed cross constituencies,differentegislatorsrepre-sent different roups.5

ASSUMPTION 2. Parties lace noconstraintsn thebehavior f ndividualrepresentatives.-Partiesere strongaround the turn of the centurywhen theypossessedreward systems nd sanctionmechanisms o con-trolthe behaviorof members.Specifically, artyorganizationsdeter-minedentrynto competitionforthe ocal seat,thepositions fpowerwithin he legislature, nd the distribution f legislative enefits e.g.,a representativeobtained legislativebenefits only if he supportedpartymeasures).None oftheseconditionsnowholds. In what follows,we therefore reat the individualas the decision-making nit.6

ASSUMPTION 3. Majority ule s a binding onstraint.-Proposedbills(alterationsn the statusquo) must command the supportofa major-ityof the entire egislature n order to become law.III. The Gains from Exchange: The Problemto Be SolvedLegislators pursue their reelection goals by attempting o providebenefits o theirconstituents assumption 1). Actingalone, theycan-notsucceed (assumption3). This, in combinationwith he diversityfinterests heyrepresent,generates gains fromexchange and cooper-ation among legislators. But what institutionsunderlie-and en-force-this cooperation?

5 Evidence for this view abounds in the literature.For a recent summary n thepoliticalscience literature, ee Fiorina (1981b). In the economics literature, ystematicevidence has been provided as partof the controversy ver ideological voting n Con-gress.While the empirical ssue concernsthedegree to whichrepresentative ehaviorcan divergefrom onstituents'nterests,ll studies provide substantial videncethat helatter ystematically-thoughnot necessarily ompletely-affectscongressionalvoting(see Kau and Rubin 1979; Kalt and Zupan 1984; Peltzman 1984).6 Substantialevidence for thisassumption s provided in the political cience litera-ture see, e.g., Mayhew1966). To takeone example: thewhip system, nce a tooloftheleadershipto keep partymembers n line,now operates as a serviceorganizationpro-viding nformationo the eadershipand tothe members.To quote one popular text nCongress, t "operatesnot as muchas a devicetocoerceor evenpersuade members s itdoes simply o inform he leadershipof thedispositionof memberstoward egislation"(Polsby1984, p. 129).


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138 JOURNAL OF POLITICAL ECONOMYThe new economics of organization uggests hat nstitutionsvolveto ensure deliveryof benefits. n order to understand whyone ex-change mechanism survives nstead of another, we need to studythepotentialagency and transactions ost problems faced by legislators,given the types of trades they seek to make. It is useful to begin byfocusingon previous approaches to legislative xchange that explic-itly rely on marketlike mechanisms. By studying the enforcementproblems ncountered n this etting,we can determine he character-istics more appropriate legislative xchange mechanism must pos-sess.Previous work has focused on vote rading, lso known as logrolling,

centralized egislative xchange, or legislative OUs. The major pro-ponents of particular versions nclude Tullock (1967, 1981), Wilson(1969), Telser (1980), Koford (1982), and Becker (1983). Whilethereare significant ifferences mong these approaches, fundamentaltoeach is an explicit or implicitmarket n votes. Under the mostwell-knownlogrollingversion, egislatorsbegin with proposals to benefitthemselves at the expense of others, but none of these proposalscommands a majority Buchanan and Tullock 1962; Tullock 1967,1981). Legislatorstherefore earch out tradingpartners. n exchangefor upport, ach gets his proposal passed and, on net, s better ff. nthe explicit market versions, votes are bought and sold for a price,withthe "equilibrium" prices determiningvote trades and hence thesetof billspassed (see also Wilson 1969; Koford 1982).The motivation nderlying hese marketmodels is clear. By givingaway votes on issues that have lower marginal mpacton theirdistrict(and thereforeon their electoral fortunes) n exchange for votes onissues having a larger marginal impact, legislators are better off.Whetheror not they ncorporatean explicit auction,models of thelegislativemarket for votes have considerable appeal.A carefulinspection,however, reveals thatthisapproach assumesawaysome of the deepest problems plaguing legislative xchange. Itassumes, for example, that all bills and theirpayoffs re known inadvance; that is, there are no random or unforeseen future eventsthatmay nfluenceoutcomes or payoffs. itherthe timedimension ssuppressed or enforcementof agreements over time is leftexoge-nous. Because these models study a legislature withno future, heycannotaddress how legislators ope with greements hatcovermorethan one legislative ession.A variety f exchange problemsarise because the value of today'slegislation significantly epends on next year's legislativeevents.Members offuture essions face incentives ifferentrom hose facedwhenthe trade occurred and may seek, for example, to amend, abol-ish,or simply gnore previous agreements.Because current egislators


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INDUSTRIAL ORGANIZATION 139typicallyannotbind a future egislative ession,problemsof enforce-mentovertimeare criticallymportant orunderstanding egislaturesand cannotbe assumed away.Moreover,as we will see, thesesettingsinhibitthe abilityof noninstitutional nforcementof cooperation(e.g., reputation) s the sole means of policing bargains. n the faceofuncertainty ver thefuture tatusoftoday's bargain,therefore,egis-latorswill devise institutions or long-termdurability f agreementsthatensure theflowof benefits eyondthis sessionof thelegislature.To begin our analysis,we observe thatmostmodels of the legisla-tive marketapply to only a subset of problemsfaced by legislators,typicallyheporkbarrel.Porkbarrelprogramsare an important artofeverymajorWesterngovernment, uttheyhave specialcharacter-isticsthat do not hold for other typesof legislation.For example,benefitflowsare contemporaneous to different egislators in thiscase,the fundsfinancing he project), nd consummation f trading ssimultaneous see, e.g., Buchanan and Tullock 1962; Tullock 1981;Koford 1982). Focusing solelyon pork barrel-typeprogramsrulesout virtually ll the important ssues studied in the regulatory itera-ture as well as themajor U.S. redistributive rograms.7We considerthe problems generated by noncontemporaneous benefitflowsandnonsimultaneityn turn.A. Noncontemporaneousenefit lowsTo see how differential atternsof benefitflowspotentiallynhibittrading,consider the followingexchange problem. Suppose that agroup of legislatorsseeking pork, for example, dams and bridges,attemptsto find some other group of legislatorswithwhom to ex-change votes.Suppose further hatone potentialsetof trading part-ners is a group of legislatorswho seek a flowof servicesfrom aregulatory gency. If the two sides exchange votes,the firstgroupobtains its dams and bridgeswhile the second obtains its regulatoryagency.Once the dams are built,however,whatstopsthe first roupfromrenegingon the agreement,for example, fromworkingduringa future egislative ession to revoke the regulatorybenefits? implemarketexchange institutions o not adequately protectagainst thisform of reneging (and, as we will see, repeated interaction lone isinsufficient o prevent this problem). Rational coalition partners,therefore, iscountthe potential gains froma proposed tradebytheprobabilityhatthesebenefit lowswillbe curtailedbyreneging.Con-sequently, he second group of legislatorsmightnotaccept the trade

7 For several surveys n this iterature, ee the articles n Fromm(1981).


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140 JOURNAL OF POLITICAL ECONOMY(e.g., if the trade yields thempositive net benefitsonly if renegingdoes not occur).B. NonsimultaneousxchangeA second exchange problem arises because many potential tradesconcern bills that do not come up for a vote simultaneously.n thepork barrelarea, legislators re able to limit his problemby packag-ing all projects nto an "omnibus"bill containingall elementsof thetrade. This simple device limits he opportunitiesfor ex post reneg-ing.8 But it is not always possible forall bills n a legislative essiontocome up fora vote simultaneously.9Consider a trade negotiationtaking place just prior to a vote. Inexchange for a vote, some legislator promises to support anotherlegislator's illthat s due tocome up sometime ater n the session. nother words,he extends an IOU to the second party. But problemswith OUs occur in part because they re not a mediumofexchange.They require that one individualrely on the futurebehaviorof an-other. Were votes a medium of exchange, this reliance would not benecessary. 1()Consequently,exchanges relying n IOUs are plagued bythetwoproblemsnoted in SectionI, namely,problemsof observabilitynd ofthe existenceof contingencies oo numerous (or too costly) o antici-pate fully.Manyevents may occur betweenthetwovotes.First, ublicperceptionof the issue may change, and the electoraleffect f thischange is observable solely to the representative t affects.This in-duces a formof moral hazard. Thus the firstegislatormayclaim thathe can no longer support thebill and so attempt o renege. Since thestateof theworld is observed only byone legislator, t is difficult orthe second legislatorto verifythe first's laims about whetherheshould be required to hold up his end of the bargain. Second, inresponse tochanging political ircumstances,he bill tselfmayevolve.This introduces double-sidedformofmoral hazard. Since the elec-

8 Because the omnibus mechanism for ensuring against reneging is more readilyavailable for bargains betweenmembers of the same committee e.g., across subcom-mittees), he optimalpatternof committeeurisdictionsdepends on the expected pat-ternof trading.See Ferejohn (1986) for a further iscussionof this nd similar ssues.9 Nonetheless,whenthe volumeof legislationwas sufficientlyow to allow all bills tobe passed in a short period, legislatures n factdid so. Thus, for theU.S. Congress inthe nineteenth entury, t was common thata major portion of legislationwas passedduringthe lame-duck sessionafterthe electionof thenext congress.This also appearsto hold todayfor stateswhose legislaturesmeet foronly short periods.10As a consequence, the so-calleddouble coincidenceofwants s notsatisfied ythistransaction.More generally, OUs have none of the propertiesof' a medium of' ex-change: a storeof value, a unit of account,and ready transferability.


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INDUSTRIAL ORGANIZATION 141toral effects f thischange are observable solely by the legislator taffects, he firstegislatormay argue that,while he could support theoriginal bill, he cannot support thenew version. On the other hand,the drafters of the legislation, having gained additional supportthrough trades, mayopportunistically ewrite he legislation o as toincrease their own benefits and impose greater costs on others).Trading in legislative IOUs thus poses considerable contractualproblems of the sort studied in the theoryof the firm.Either IOUsmust be for a specificform of a billwithout ny alterationsor theymust provide forhundreds of contingencies,many ofwhich are notobservable to both parties. Neither form of IOU is likelyto proveuseful. The former everely imits hetradingpossibilities. incemostlegislation s altered at several stagesbefore it is passed, this formofIOU exchanges one vote for sure against one vote under relativelyrare circumstances-an unlikely basis for a transaction.11 urther,differentontingencies re important o different egislators, nd themarket for specific, ontingent OUs is likely to be extremely hin,perhaps requiring different ricefor each potential rade.As Coase(1937) observed, this obviates thebenefits f a price system.But per-haps more important, the observabilityproblems associated withmany contingenciessuggest that IOUs are unenforceable: how arethe parties to agree ex post when the number of possible events islarger than the number of specified contingencies and when bothpartiescannot observe the outcome?This discussionreveals that market formsof exchange are limitedas a means of capturing the gains from trade. As noted in Section I,problemswithobservability nd ex post enforceabilityre fundamen-tal to understanding the motivationfor internalizing transactionwitha firm.Just as these problemslead to the emergenceof verticalintegration o replace marketexchange, they motivate he designofinstitutionswithinthe legislaturethat substitute orexplicitmarketexchange.In the discussion so far,there has been littlementionof therole ofrepeat play. Repeated interactionprovides incentivesfor ndividualsto adhere to agreements this period so as to maintaina flowofbene-fits ver time.'2 This formof endogenous cooperationsurelyplaysa

" See Ferejohn (1974b) for a further xploration of' the peculiar propertiesof amarket n votes.This stems n part from results n the collective hoice literature hatshow that when one set of vote trades is feasible, so are many others e.g., Schwartz1981). This prevents the logic of the standard argumentsabout supportingprice sys-tems fromholding in this context.12 See, e.g., Axelrod (1984) and Calvert 1985). There is,ofcourse,a growing itera-ture in economics on this topic (e.g., Telser 1980; Klein and Leffler1981; Kreps andWilson 1982; Roberts 1986). A further roblemlimits he workability f thissolution,thatof legislative urnover.Even in current imeswhen incumbents re reelectedwith


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142 JOURNAL OF POLITICAL ECONOMYrole in legislatures, nd forsome settings,t alone maybe sufficientopolice bargains. It is wellknown,however,that"the long armof thefuture" s inadequate in settings n whichagents have private nfor-mation and in which t s impossibleor too costly o specify ll contin-gencies in advance.13 It is precisely theseproblemsthatwe have ar-gued motivatethe need for alternative egislative nstitutions. heimportance of unanticipated contingencies in both noncontem-poraneous and nonsimultaneous tradingcombined withprivate n-formation nd moral hazard in the latter uggeststhe need foraddi-tional mechanisms to maintainbargains.Perhaps another way of puttingthe argumentof thissection s asfollows.Repeat play alone is insufficiento prevent hebreakdown ofcooperation under certaincircumstances.Legislators thereforehavean incentive to devise institutions hatreduce the circumstances nwhichbreakdown occurs. In this ense, legislative ules are not substi-tutesfor reputationbuildingand trigger trategies ommonlyused inrepeat play.Rather,rules complementtheuse of thesestrategies nd,in particular,prevent the breakdown of cooperation at precisely hecircumstances nder whichthese other strategies ail.

This argumentclosely parallelsthatofvertical ntegrationn whichreputationeffects re also insufficient o police cooperationbetweenfirms. n both cases, potential ontractualproblems ead to the designof institutionshat substitute or marketexchange; in so doing, theyimprove ex post enforceability f agreements.This does not implythatreputationbuilding sunimportant n legislatures r in firms hatare verticallyied, ust that t s not the solemeans of enforcing gree-ments. Indeed, the other institutions f the legislatureundoubtedlyfacilitate tsuse as a means to complementother devices.C. ImplicationsProblemsconcerningthedurability nd enforceability f bargains areubiquitousin legislative ettings, imiting he value of explicitmarketforms fexchange. 4 Putanother way, oalitions ackdurability nderhigh frequency, he average net turnover n Congress is 10 percent per term.More-over, the losersare typically eplaced withmemberswithdifferent references fonlybecause the latter, n order to beat the former,had to devise a separate supportcon-stituency.

13 The literature n thetheory f thefirm s built on the premisethatthe ncentivesderivedfromrepeatdealings alone are insufficiento police incentive roblems.Exam-ples are the vertical ntegrationor the optimal structure f' financialclaims. See thereferences n n. 2.14 Moreover,the problemof non-pork barrelprogramsand lack of simultaneityonot exhaust the situations n whicha legislativemarket s a poor providerof durability.Forexample, even iftwogroups of legislators othseekpermanentregulatory enefits,


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INDUSTRIAL OR(GANIZATION 143an explicitmarket exchange system. n the face of these problems,legislatorswilldevise alternative nstitutions hat provide exchangeswith greaterdegree of durability see Ferejohn 1986). We nowturnto a discussionof how this s accomplished.IV. The Legislative Committee SystemThis sectiondevelops a model of an idealized legislative ommitteesystem.The types of policies (i.e., legislativebargains) that emergefromthismodel parallel those predictedby the vote-tradingmodels;but it is not plagued by problems of enforcement f exchanges. Thelegislativecommittee system s defined by the followingthree con-ditions.

CONDITION 1. Committees are composed of a numberof seats orpositions,each held by an individual legislator. Committees possessthe following properties: (a) associated with each committee is aspecific subset of policy issues over which it has jurisdiction (e.g.,commerce,energy,banking,or agriculture); b)within heirurisdic-tion, committeespossess the monopolyrightto bring alternatives othestatusquo up fora vote before the legislature;and (c) committeeproposals mustcommand a majority fvotes against the statusquo tobecome public policy.

CONDITION 2. There exists property ights ystem vercommitteeseatscalled the"seniority ystem." t has the following haracteristics:(a) a committeemember holds his position as long as he chooses toremain on the committee; subject to his reelection, he cannot beforced to give it up; (b) leadership positionswithinthe committee(e.g., chairmanship) are allocated by seniority, hat s, the lengthofcontinuousserviceon the committee; c) rights ocommittee ositionscannotbe sold or traded to others.CONDITION 3. Whenever a member leaves a committee e.g., bytransfer, eath,or defeat), his seatbecomesvacant. There isa biddingmechanismwherebyvacant seats are assigned to other congressmen.Condition 1definesthe source ofcommitteepowerand value,con-dition2 definestheproperty ights ystem ssociatedwith ommitteepositions, nd condition 3 establishes an exchange mechanismover

therights stablishedunder 1 and 2.Let us explore the consequences ofthe egislative ommittee ystemto determine tsenforcementproperties,how new policies are pro-changing electoralfortunesmaypromote growth n one and shrinktheother; to theextentthat this change appears reasonablypermanent, tprovides theconditions fos-tering a revocationof the latter group's benefits.When the once and for all gainsexceed the costpotentially mposed by the nowsmaller)otherside,reneging slikely ooccur.


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144 JOURNAL OF POLITICAL ECONOMYvided, its controlof the agencyproblemsthatarise from thedelega-tion of power to a particularsubset of members,and the typesofpoliciesthatare likely o emerge from t.A. EnforcementfLegislative argainsThe committee ystemprovides substantialprotection gainstoppor-tunistic ehavior, therebyprovidingdurability o policybargains.Tosee this,consider the settingdescribedabove in which one group oflegislators eeks dams and bridgesand the second seeks a regulatoryagencybenefitingtsconstituents.n the egislativemarket, his gree-ment s vulnerable toex postrenegingof thefollowing orm:the firstgroup, afterbuilding its dams, mightforma coalitionwith otherlegislators perhaps the minority xcluded from theoriginaldeal) topass a new bill revokingtheregulation benefiting he second group.But now consider the same bargain assuming that it was forgedunder the committee ystem nd thatthe first roup controlledthecommitteewith urisdictionover pork barrel programs,the second,the committee with the jurisdiction over the relevant regulations.Under the committee ystem, he second group retainscontroloverthe agenda within ts urisdiction.Suppose that,once the dams andbridges are completed, thefirst roup introduces egislation orevokethe benefitsflowingto the second group, and, further, majoritysupportsthis egislation.However, onlythe committeewithurisdic-tion can bring tto thefloor for a vote.This controlover theagendawithin ts urisdiction implies thata committeehas veto power overtheproposals of others. Since this proposal would make the commit-tee worse off and since, by assumption, majoritywillsupport tonthefloor), he committeewould not allow it to come up fora vote. Inother words,the restrictedccess to the agenda serves s a mechanismto preventex post reneging.Moreover, because exchanges in influence are institutionalizedthroughthe propertyrightssystem, he absence of simultaneitysconsiderably esstroublesome.As longas the property ights ystemsmaintained, he agenda powerheld by each committee ubstitutes oroutstanding OUs withuncertain ontingencies.The problems ssoci-ated withdevisingcontingent laimsover future ventsare relativelyabsentunder the legislative ommittee ystem.B. ProvidingNewBenefitsor How CommitteesapturetheGainsfrom xchange)The agenda rights fford ommitteemembersconsiderable nfluenceover policychoice withintheir urisdiction.This followsbecause the


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INDUSTRIAL ORGANIZATION 145setof pointsthat command a majority gainst any given status quo,W(sq), is generallyquite large (McKelvey 1976, 1979; Shepsle andWeingast 198 1). Typically,W(sq) ncludes a widerange of policy lter-natives, ome making committeemembers worseoff and some mak-ing them betteroff. Given this range of alternatives,genda powerallows committees o bias the outcome in favorof the alternative heymostprefer.'5The committee ystem nstitutionalizes tradeamong all the legis-lators,policyarea by policy area, for the right o select whichpointsfrom W(sq) replace the statusquo. But this is neither accomplishednor enforcedby an explicitmarketexchange. Rather, a legislator ncommittee gives up influenceover the selectionof proposals in thearea of committee in exchange for membersof committee's givingup their rightsto influence proposals in area i. Institutionalizingrights ver agenda power-that is, controlover the design and selec-tion ofproposals that arise fora vote-substitutes forpurchasingthevotesof others n an explicitmarket.Since anyelement of W(sq)willpass by definition,t s the nfluence ver elementsof this et affordedcommitteesby agenda power that eliminatesthe need for explicitexchange of votes.C. WhoGains nfluenceorHow AretheGainsfromExchangeDistributed)?This question concerns the typesof policies chosen under the com-mittee ystem. ince committees fford heirmembersdisproportion-ate influenceover policy choice within heir urisdiction, t also con-cernsthe mechanism thatassigns legislators o committees.Condition 3 providesthatthe legislatureuses a biddingmechanismto assign members to committeepositions.Since a representative'selectoral fortunesdepend on his obtainingbenefitsfor his constitu-ents and since constituent nterests iffer, egislators eek assignmentto thosecommittees hat have the greatestmarginal mpactover theirelectoralfortunes.The real opportunity osts ofbiddingfor commit-tee i are that the representativegives up the possibility f holdingaseat on committee . Thus representativesfromfarmdistricts remuch more likely o bid for seatson agriculture ommittees han theyare forseats on urban,housing,or merchantmarine committees.Apotential problem arises, however, because some committees arevalued by all (e.g., the spendingor taxingcommittees).However,heretoo the biddingmechanism determinesassignment.The more com-

'5 The details of this process are beyond the scope of this paper. For an in-depthanalysis, ee Shepsle and Weingast 1984, 1987).


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146 JOURNAL OF POLITICAL ECONOMYpetitionfor seats, the less likelythe bid will be successful.Supposeeach potential bidder for a highlyvalued committee e.g., one con-cerning taxes) also values some specificpolicycommitteewithmuchless competition e.g., housing, agriculture,or public works). Theincreased competitionfor seats on the tax committeesmplies thatonly those with the greatestdifferential alue between the tax com-mittee nd theirnext-best lternativewill pay theopportunity ost ofbidding (i.e., givingup a higherprobability f getting heir policycommittee).D. ImplicationsorCoalition ormationThe legislative ommittee ystemhas two separate effects n coalitionformation.First, genda power held bycommitteemembers mpliesthat successfulcoalitions mustinclude the membersof the relevantcommittee.Withoutthese members,thebill willnot reach the floorfor a vote.This, in turn, mpliesthat certainpoliciesare unlikely obecome law, forexample, those thatprovide benefits nlytoa major-ity ff he committee. n technical erms, ommittee eto mpliesthat,from mong the setof policies thatcommand a majority gainst thestatus uo, only thosethatmake the committee etter ff re possible(thisissue is extensively xplored in Shepsle and Weingast[1987]).This significantlyeduces the feasibleset of policiesthatmaybe im-plemented.Along these ines,we also notethat ince committees ave rights obringa singlebillto thefloor, radesamong committeemembers remore likelyto succeed than those across committees.This followsbecause there is less chance for such a deal to fall apart. When acoalitionformsbetweenmembers f twocommittees,egislatorsmustagree toexchange votes on twoseparatebills.When a coalitionformsamong membersof the same committee, heymay bringa singlebillto thefloor.The latter llows a singleup or down voteon thepackage(whereas the formerdoes not), thereby ffordingess chance for re-neging.This suggeststhatdrawingthe urisdictionalboundariesbe-tweencommittees s an important trategic ariable thataffects hepattern fcoalitions.'6 Ceterisparibus,expected tradingpartners rebetteroffif they are membersof the same committee o that the

16 See Ferejohn (1986) for discussionof this ssuein the context f a trade betweenthe urban members on the AgricultureCommittee seeking food stamps) and thefarmers n thiscommittee seeking continued farmbenefits).He argued thatbeing onthe same committee dvantaged these urbanmembersover otherpotential egislativepartnerswhowerepartofothercommittees hatmighthavebrought ome other formof legislationproviding ome subsidyforfood for hepoor (the atter ould have easilybeen written y,e.g., Ways and Means).


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INDUSTRIAL ORGANIZATION 147optimal patternof urisdictionsmust n part reflect he expected pat-tern of trades.The second effect n coalitionsconcerns durability. he durabilityafforded by the committee system nduces some rigidities nto thecoalition formationprocess. Under a marketexchange mechanism,small changes in politicalcircumstanceswould lead to a smallchangein the optimal set of bargains and coalitions.But under the committeesystem, mall changes in circumstancesdo not automatically ead tochanges in policy. To see this,consider the example explored aboveinvolvingdams, bridges, and regulatorybenefits.We showed abovethat committeeveto power prevents the proponents of dams fromeasily renegingonce theirdams are builtor if,because ofa change inpoliticalcircumstances, heyfind a more attractive oalition partner.This does not mean, however,that thedam-and-bridges egislatorscan never alterpolicy.Rather, tmeansthattheymustbid forseatsonthe committee nd wait until they ttain a majority. mall changes inpolitical circumstances re not likely to make it worth the attempt.Therefore, the committee ystem mplies thatpolicywillrespond onlyto large changes in political circumstances r to major shifts n theelectorate. 7E. Controls verCommitteesCommittees are decentralized decision-makingunits composed ofthose legislators with the greatest stake in their urisdiction.Theirpowertodecide what proposals (if any) are brought othefloorplacesthem n an agency relationwith herestofthe egislature.As with nyformof delegation, this authorityprovides the potentialformoralhazard. What preventsthe committeefromextracting oo much sur-plus at the expense of other legislators?The committee systemconstrains the behavior of its subunitsbyrestricting ommittee power. In particular,the majorityrule condi-tionprecludes any one committeefromextracting oo many gains atthe expense of others. Suppose, for example, that one committeeattempts o extract he entirebudget.The majority ule requirementimplies that thisproposal must get a majority f legislators o give uptheopportunity o spend some of the budgetin their reas. They willdo so onlyifthe value of the last dollar fromthisproposal to themexceeds the value of the first ollar spentwithin heirown urisdic-

17 We note that this phenomenon parallels vertical ntegration.There, long-termagreementsalso induce durability nd rigidities: he contract s not renegotiatedwitheach small change in economic circumstances e.g., prices) and thereforedoes notrespond to changes in the way a spot market toes.


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148 JOURNAL OF POLITICAL ECONOMYtion. Since members value influencewithintheir ownjurisdictions,this situation s unlikely.Thus the voting rule plays an importantconstraining ole over the opportunisticbehaviorof particularcom-mittees.8F. SummaryInstead of trading votes, legislators in the committee systemin-stitutionalize n exchange of influenceover the relevantrights. n-stead of bidding for votes, legislatorsbid for seats on committeesassociatedwithrights o policyareas valuable fortheir reelection. ncontrast o policychoice under a marketforvotes, egislative argainsinstitutionalized hroughthe committee ystem re significantlyessplagued by problems of ex post enforceability.V. Evidence: The Distributionof Preference,Influence,and the Benefitsof CommitteesIn whatfollows,we provideevidence showingthatchoices and deci-sion making in the U.S. Congress are consistentwithour view.19(Thus this s not a directtestbetween our model and thevote-tradingapproach.)The major feature of our model is thatexchange takes place viainstitutionalizationhrough hecommittees. y farthestrongest ieceof evidence from the U.S. Congress in favor of our approach con-cerns the pattern of membership and benefitflows forthe variouscommittees Fiorina 198 a). Members fromfarmingdistricts omi-nate the agriculturecommittees nd oversee programs thatbenefitfarmers.Members fromurban districts iton banking,housing, andwelfarecommittees that provide benefitsto an incredible arrayofurban constituents.Members with large defense installations r in-dustriesdominate Armed Services committees. n each case, mem-bers mold policies in their urisdictionto theirconstituents' dvan-tage.The model is based on a set of assertionsabout committee pera-tion: (a) the assignmentprocess operates as a self-selectionmecha-nism; (b) committees re not representative f the entirelegislaturebut nsteadare composed of"preference utliers," r thosewhovalue

18 In most egislatures, he amendment process places additional constraints n thebehavior of committees. or details of thisprocess for he U.S. Congress, ncludinghowitqualifies this argument, see Shepsle and Weingast 1987). The problem of how thisbody places constraints n committeeshas never received systematicreatment.19 Congress, unlike the BritishParliament,meets the conditions et out in Sec. II. Webriefly ompare our findings orthe American case with hose of theBritish nSec. VII.


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INDUSTRIAL ORGANIZATION 149the positionmost highly; nd (c) most centrally, ommitteemembersreceive the disproportionateshare of the benefits from programswithintheir urisdiction.Let us surveythe empiricalevidence sup-porting hese propositions.A. CommitteessignmentsAt the beginningof each new congress,thereare a number of vacantcommittee eats n some 25 committees nd there are incomingfresh-men withoutseats.20 They are encouraged to request only a smallnumber of possible positions.Then party eaders attemptto matchindividualassignmentswiththeir freshmanrequests.There is, how-ever,a potentialproblemhere: What prevents he system rombreak-ing down because everyonerequests seatson the best and most pow-erfulcommittees?How does the bidding mechanism actuallyselectthosefreshmenwillingto bid the mostforparticular ommittees?The mechanics of the assignment process are designed to workagainst breakdown. It turns out that there are certain committees(e.g., PostOffice)thatno one wants.Those who failto getone of theirrequested slots are generallyput on one of these committees.Re-questing the most valuable slots, therefore, ncreases the probabilityof ending up withPost Office. Suppose each freshmanmay poten-tially equesta particular ubstantive olicycommittee e.g., Agricul-ture, Housing and Welfare,or Public Works)valuable for his districtthat he has a high probability f getting.Which ones will opt insteadto request the more powerfulcommittees?Since the latteroptioninvolves lottery etween the mostvaluable committee nd one worthvirtuallynothing, only those freshmenwho value it mosthighly ncomparisonwith the sure thingof getting n theirpolicycommitteewillbid for t.21This lottery mpliesthat revealed preferencesreflecttruepreferences nd showshow theassignmentmechanism ucceeds

2()The following escriptionrelies on Shepsle (1975, 1978). While he did not discussthe preferencerevelation spects of the assignmentprocess, t s clear thatthe processmust rely on some means of inducing truthful equests.Since few empirical contextsthat make use of these mechanismshave been studied,his data remainan untappedsource forfurther tudy. n what follows,we ignore for simplicityeturningmemberswho wish to change committees.For detailson how thisworks, ee Shepsle (1978).

21 The following able reportsthe frequencydistributionver the lengthsofrequestlists i.e., how many committees ach freshmanrequests).Three-quartersof all fresh-men (87th-93d Congress) ask for threeor fewer out of 25. The numberof observa-tions s 231 (source: Shepsle 1978, p. 49).Length 1 2 3 4 5 or MorePercentage 23 16 36 15 10


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150 JOURNAL OF POLITICAL ECONOMYTABLE 1

FRESHMAN AssIGNMENTr SUCCESS

PROPORTI ON RECEIVINGFirst Other No

CONGRESS Preference Preference Preference N87th .474 .368 .159 1988th .500 .306 .194 3689th .591 .254 .155 7190th .308 .308 .384 1392d .750 .144 .106 2893d .691 .166 .193 26All .585 .243 .172 193

SOURCE.-Shepsie (1978, p. 193).

inmatchingmemberswithcommitteeswhose urisdictions heyvaluemosthighly.The evidence supportingthis nterpretations twofold.First, able1 shows that the probability f a freshman'sgainingone of his topthree is above .8.22 Second, and more important, able 2 showsthatwhen there is no competition for a seat, the requester is virtuallyassured ofgettinghis first hoice (theprobabilitys over .94); butthegreaterthecompetition, he less likely s a freshman o attainhis firstchoice. There is also considerable evidence that freshmanrequeststake into account competitionfor seats.23Competitionof this sortappears necessary-though notsufficient-to ensure thatbids reflectunderlyingpreferences.Overall,then,thepatternof committee ssignments ooksremark-ably ike an optimizationprocess thatmaps members ntothose com-mittees hey value the most.B. Committee embershipTo be more systematicbout committeemembership,we have exam-ined indexes of member preferencesover issues thatcorrespond to

22 Moreover, it is not clear thatthisfrequencycan be much higherbecause of themany ccountingconstraintssee Shepsle 1975) imposed on theproblem e.g., onlyonefreshmanper slot; each vacant slotmustbe filled).23 Shepsle (1978) provided one more piece of evidence for our model. Usingprobitanalysis to predictwhichfreshmanrequestsparticular ommittee lots,he estimatedsetof simpledemand equations. His results re consistentwith ur model,namely, hatsimplemeasures ofconstituencyntereste.g., number ofagriculturalworkers,militaryemployees,or housing) are good predictors frequests.Moreover,these estimates lsoshow thatfreshmenrationally nticipatecompetitionfordifferent eats: when otherfactors re held constant, he estimatedprobability f a freshman's equestinga certainseat goes down as the numberof competitors ncreases.


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INDUSTRIAL ORGANIZATION 151TABLE 2

EFFECTS OF COMPETITION ON ASSIGNMENTSTOTAL NUMBER OF EFFECTIVE

REQUESTS PER VACANCYFIRS T PREFERENC EASSIGNMENT SUCCESS Less than 1 1-2 More than 2Yes 94.4 67.2 30.5No 5.6 32.8 69.5

SOURCE.-Shepsle (1978, p. 201).

major committeeurisdictions.This exercise reveals that membersofthe relevant ommittee r subcommittee ignificantlyiffer rom herestof the House.24 Most indexes are computed by an interest roupwitha clear stake in the policy area being considered. Because theyare constructed o as to indicate whichcongressmen re supporters fthe group, these indexes are good proxies for supporters of thegroup's interests.The scores computed by the AFL-CIO Committeeon Political Education (COPE), for example, indicate pro- and anti-labor congressmen; the American SecurityCouncil's National Secu-rity ndex (NSI) reveals supportersof a strongnational defense and,apparently, pponents of foreign id.2'The model predictsthat representatives f particular nterests ainpolicy benefits hrough membership on relevantcommittees.Hencewe should observe that committees re composed of members whoare significantly bove-average supporters of the relevantinterestgroup and, in particular, have interest group scores significantlyabove the mean for the entire Congress.This pattern s borne out by the results reported in table 3. Thedifference n preferencesbetween committeemembers and the restofthe House is highly tatisticallyignificant. or a diversityfpolicyareas-defense, foreign aid, consumer protection, abor, and theenvironment-committee members are indeed significantlybove-average supporters of benefits o the relevant nterestgroup.Putting his evidence togetherwithresultsfromcommittee ssign-ments reveals that legislators opt for committees relevantto theirconstituents' nterests nd that their doing so leads to committees

24 Though this would seem to be an obvious topic for political scientists, heyhavenever systematicallyollectedthistype of data. Instead the literature ypically rovidesanecdotal evidence, the best of which can be found, e.g., in Jones (1962) or Fenno(1973).25 Foreign aid to othernations,under the urisdiction f the Foreign Relations Com-mittee, eems to be a (political) ubstitute ormilitarypending programs.The evidencesuggests hatthose congressmenwho support this id tend to be against defensespend-ing, and vice versa.


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COMMITTEE MEMBERS ARE PREFERENCE OUTLIERSRELATIVE TO THE FULL HOUSE (1978)

Full House CommitteeMeana Mean Nb t-Statistic1. Armed Services: NSI 59.1 76.8 38 17.87**2. InternationalRelations:NSI 61.7 50.2 37 11.42**ADA` 37.5 46.5 37 10.23**t-test or mean NSI differ-ence between Armed Ser-vices and InternationalRe-

lations 19.40**3. International elations: nter-national Economic Policyand Trade Subcommittee:NSI 60.8 51.3 7 4.24**ADA 38.1 45.0 7 3.50**4. InterstateCommerce:Consumer Protection ndFinance Subcommittee:ADA 37.9 55.5 8 9.57**5. Education and Labor:Economic OpportunitySubcommittee:COPE 50.4 60.0 4 3.33**6. Environmental ub-committees:LCV' 46.7 58.3 28 2.08*

a All non-committee members.bCommitteeor subcommittee ize.' Vote ratings f the Americans for Democratic Action.Includes two of the major subcommittees with oversight responsibility or the EnvironmentalProtectionAgency,the Subcommitteeon Energy and the Environment Interior Committee), nd Subcommittee n Healthand theEnvironment Commerce Committee). LCV is the League of ConservationVoter scoresfor 1977.* Significant t the .05 level.** Significantt the .01 level.

composed of legislatorswithconsiderablyhigher supportforpolicieswithin heirurisdiction.This pattern sprecisely hatexpected bytheview that committees nstitutionalize rades over influenceso as togive their members greatercontrol over policieswiththeir urisdic-tion.C. CommitteeolicyBenefitsDo committeemembers receive a disproportionate hare of the bene-fitsfromtheir committees?The evidence on preferences providesindirect upport for this since committeesdisproportionately ttractrepresentatives eeking to provide their constituentswith benefits.


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INDUSTRIAL ORGANIZATION 153Here we summarize some direct evidence in favor of this proposi-26tion.1. Ferejohn (1974a) in his now-classic studyon the pork barreltested a variety f hypotheses bout committees.He showed that thenumber of new projects started n each state s a function f commit-tee membership.His estimations mply,for example, thateach mem-ber on the Public Works Committee yields an additional 0.63 newprojects for his state. Further, ach 10 years ofserviceby representa-tives from state yieldsapproximately n additional project. Similarresults re obtained regarding more than twodozen related hypoth-eses.

2. Arnold (1979) studied three areas (military ase closings,waterand sewage grants, nd model citiesgrants) nd providesresults imi-lar to Ferejohn's about the pattern of benefits.7 His contingencytables provide unambiguous evidence; we reproduce two.Table 4, part A, showsthe frequencyof acceptance of an applica-tion for a water and sewage grant, depending on a congressman'sposition in the committeesystem: s he a member of the relevantappropriations subcommittee? he relevant authorizationcommittee(Banking and Currency)?of neither?The table shows that membersof the relevant committees ystematicallyare betterthan nonmem-bers. Those on neithercommitteehave a probability f acceptanceof.176. In contrast,membersof the AppropriationsSubcommitteehavea probability f acceptance of .313 (80 percent arger), and membersof theauthorizing ommitteehave a probability facceptanceof .281(60 percent arger). The differences re significant t the .001 level.Part B of the table shows that the same patternholds for model citiesproject selection. For these projects, ongressmenwho are on neitherrelevantcommitteehave a probability f selectionof .29. The proba-bility f acceptance for members of the Banking and CurrencySub-committee, 62, is more than double thatfornonmembers;the proba-bility ormembersofthe AppropriationsSubcommittee,86, isnearlytriple.3. Several recent studies by economistsused similarmethodologiesand yieldedsimilar vidence. Malone (1982), studying efenseexpen-

26 Unfortunately, y far the biggest ffort o supportthisproposition n thepoliticalscience literature omprises anecdotal or descriptive material rather than systematicdata analysis.While this literature supports our proposition, t is no substituteforsystematic mpirical nvestigation.27 We do not reproduce his probitestimates here (nor discuss his concerns aboutwhethercongressmen manipulate bureaucrats or bureaucrats manipulate congress-men). These estimates uffer rom ignificantconometricproblems and are thereforeof questionable value. Simultaneity,much like that found in estimating upply anddemand equations, plagues his design.


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FREQUENCY OF ACCEPTANCE OF APPLICATIONS

Application Applications Not Total ProbabilityRepresented Accepted Accepted Decisions ofAcceptanceA. Water and Sewage Grant Selection (1970)

Subcommittee fAppropriationsCommittee 21 46 67 .313Banking and CurrencyCommittee 27 69 96 .281Neithercommittee 261 1,223 1,484 .176

Total 309 1,338 1,647B. Model CitiesProjectSelectionSubcommittee f

AppropriationsCommittee 6 1 7 .86Banking and CurrencyCommittee 5 3 8 .62Neithercommittee 38 78 116 .29Total 49 82 131SOURCE.-Arnold (1979, pp. 139, 180).NOTE.-For t. A, x2= 13.80 and significance evel is .001. For pt. B, x2 10.81 and significanceevel is .01.

ditures, howed thatmembers of the Armed Services committees e-ceive a statisticallyignificant reater hare of federalexpenditures nthis category, though Rundquist (1973) could find none. Faith,Leavens, and Tollison (1982) studied thegeographic ocationof firmsthatare the target of antitrust uits broughtby the Federal TradeCommission (FTC). They showed thatfirms ocated in districts ep-resented on the FTC oversightsubcommitteeswere systematicallyunderrepresented n the set of suits broughtbythecommission.Co-hen and Noll (1986), using an innovativemethodology, erivedsimi-lar resultsfor federal R & D projects.4. Weingastand Moran (1983) studied the nfluence fCongressonthedistribution fcases chosen by the FTC underthe various statutesit administers.They found, for the Senate, that all memberspossesssome influencebut thatmembers of the relevant ubcommittee os-sess more influence and that the subcommittee hairman possesseseven more influence see table 5). According to their estimatesfortextile ases (under theFur, Wool, and Textile Labeling acts), a mem-ber of the subcommitteehad nearly threetimes the effect f a non-memberwhile thechairman had 12 times he effect f a nonmember.Their resultsreveal a similarpatternfor theother case types tudied(credit cases, Robinson-Patmancases, and merger cases).5. The patternofcampaign donations by firms rovidesadditional


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INDUSTRIAL ORGANIZATION 155TABLE. 5

CHANGE IN THE PROBABILITY OF OPENING A TEXTILE CASE WHEN A SENATOR'SADA SCORE INCREASES 10 POINTSSenator'sPosition Change in ProbabilityNot on the subcommittee .005On the subcommittee ut not chairman .013Subcommittee hairman .060

SOURC.E.-Weingast and Moran (1983).

evidence.A firm's ecision to donate moneyto a congressionalcam-paign must pass the same test as any other investmentmade bythefirm;namely,the expected value of the returnmust exceed the dol-lars invested. When deciding among politicians, irmsmustfocus onthosecongressmenwitha marginal mpacton theirfutureprofitabil-ity. f committee members have a disproportionate nfluenceoverpolicy hoice in their rea, thenthey hould attract disproportionateshare of campaign contributions ronifirms ffectedbythe commit-tee's policyurisdiction.

This prediction s clearly borne out in Munger's (1984) study.Heestimated a probit model of the probability hata certainlegislatorreceivesa donation from givenfirm.He showed that political ctioncommittees re systematicallymore likely to donate to membersofcommittees hataffecttheir firms:the probability hat a committeemember will receive a donation is .34 higher than that of a non-member.VI. Comparative Statics: Predictionsand EvidenceIn a simple marketforvotes, a smallchange in the relative omposi-tion of interestgroups leads to a small change in the demand forvotes.This, in turn, eads to a smallchange intheequilibriumpatternofexchange and hence in the distribution fpolicy osts and benefits.However, our argument about the demand fordurable policiesandtheevolution of institutions o provide them mpliesthatpoliciesarepartially nsulated fromsmall changes in memberpreferences.Be-cause committeesretain a veto over policychange, we must look tohowthesechanges affect ommitteemembers. f thechange in inter-est groups affects nly legislatorswho are notmembers of the com-mittee, hen policychange is significantlyess likely.But our modelalso leads to an important omparative staticsprediction:a sufficientconditionforpolicychange is that there is a substantial urnover ncommitteemembershipso that the new holders of committeeprop-


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156 JOURNAL OF POLITICAL ECONOMYertyrightshave preferences hat differ romthose of theirpredeces-sors (see Weingast 1981; Weingast and Moran 1983).While comparative staticsresults are a primary ool of predictionand testing n economics,few studies of political economy have usedthis approach to test theories of politics. Nonetheless, there existssome evidence on the prediction noted above in the empirical itera-ture. We cite these studiesand then suggest further ests.A. AppropriationsFerejohn (1974a) again plays an important role here. During the1950s and early 1960s, fiscal conservativesdominated the congres-sional appropriationsprocess.Further,during thisperiod,committeeleaders had nearly absolute power of assignment f membersto sub-committees.One way of enforcingfiscalrestraintwas to assign mem-bers of the AppropriationsCommitteeto a subcommittee nly ftheyhad no stake in the subcommittee'surisdiction.By the mid-1960s,however, this rule had gone by the wayside so that subcommitteescame to be composed of members with high stake n their urisdic-tion.Ferejohn showed that,for the Public WorksSubcommittee, hisled to a statisticallyignificant ncrease in appropriations.B. RegulatorygenciesA host of recent studies of regulatory gencies has shown thatcom-mitteemembers have substantial nfluence ver agencies within heirjurisdiction (Barke and Riker [1982] on the Interstate CommerceCommission,Grier [1984] on the Fed, Moe [1985] on the NationalLabor Relations Board, and Weingast nd Moran [1983] on theFTC).In nearly all cases, thesestatistical tudies showed that, s committeepreferences hange, so too does agency policy. Large swings n com-mitteepreferences ead to large swings n policy.Weingastand Moran (1983), forexample, studied therecentpolicychange at the FTC. In 1979 and 1980, the commission's ggressiveconsumeractivistpolicieswere haltedby Congress.While thisactionwas hailed as Congress's finally atchinga runaway,out-of-controlbureaucracy, Weingast and Moran showed thatnothingof the sorthappened. Instead, the FTC had been under the influenceof therelevant ubcommittee ll along. Fromthe ate 1960sthrough he midto late 1970s,this ubcommittee oth favoredand fostered ggressiveconsumeristpolicies. However, following he 1976 election,a nearlycomplete turnover n membership broughtto power memberswithsubstantially ifferent references.Weingastand Moran interpretedthe 1979-80 episode as the new committee's implyreversingthe


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INDUSTRIAL ORGANIZATION 157policies of their predecessors rather than catchingan uncontrollablebureaucracy.Their statistical ests upportthis nterpretation.VII. DiscussionRepresentatives f different onstituencieshave considerable incen-tives o exchange support so as to provide benefits o their upporters.Because the value of today's legislativebargains depends on actionstaken in future egislative essions, egislators lso have incentives odeviseinstitutions hat provide today'sbargainswithdurability.As inall exchange settings, he institutions hat evolve to support the ex-change reflect he specificpatternof transaction osts underlying hepotentialtrades. For legislaturesthese include the possibilityf con-tingencies oo numerous (or costly) o specifyn advance and privateinformation. his gives rise to a host of institutions nderpinning aset ofproperty ights oosely referred o as the committee ystem.Weshowed that these institutionsower the riskof ex post opportunisticbehavior that would plague explicit exchanges of votes. The legisla-tive nstitutions herefore ower the agency costs associatedwithex-change.In addition we showed why this set of institutionss superior to amarket xchange mechanism. nstead of tradingvotes, egislators x-change special rights ffording he holder of these rights dditionalinfluenceover well-definedpolicy urisdictions.This influence temsfrom the propertyrights established over the agenda mechanisms,that is, the means by which alternatives rise for votes. The extrainfluence ver particularpolicies nstitutionalizes specificpattern ftrades. When the holders of seats on committees re precisely hoseindividuals who would bid for votes on these issues in a market forvotes,policy hoice under thecommittee ystem arallelsthatunder amore explicit xchange system.Because the exchange is institutional-ized, it need not be renegotiatedeach new legislative ession,and it ssubjectto fewerenforcementproblems.The committee ystem lso influences oalitionformation. ommit-tee agenda power impliesthat successful oalitions n thearea of thecommittee'surisdictionmust nclude the committee.This rules out,for xample, policies thatbenefit olely coalitionofmembersoff hiscommittee, nd this holds even if this coalitioncontains a majority ftheentire egislature.Unless a coalitionof non-committeemembersis prepared to include or "buy out" the committee, etopowerallowsthecommittee o block access of thiscoalition to thefloor.We also showed thatpolicybargains, nd hencecoalitions, re moredurable under the committee ystem.Thus the decisionto enter ntosuch an agreement is much like enteringa long-term ontract, nd


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158 JOURNAL OF POLITICAL ECONOMYlegislatorswill take this nto account. This implies that coalitionswillnot always respond to small changes in political ircumstances s theywould under a spotlike market xchange system.Ratherthey endtorespond only to large shifts r major politicalrealignments. ommit-tee veto power combines with the property ight ystem ver seats toplay an important role in maintaining a political coalition-and aparticular policy-for long periods. Policy in a particulararea mayremain stable if committeemembership s relatively table,and thiscan hold even with major changes in the preferences f membersoffthecommittee.The ability o veto the proposals of others s a subtleyet powerful tool used by committees to influencepolicy in theirjurisdiction Weingast and Moran 1983; Shepsle and Weingast 1987).This argument raises some interesting arallels and contrastswiththose provided for vertical ntegration n market settings. n bothcases, institutions re designed to prevent similar formsof incentiveproblems, for example, ex post opportunism. However, it appearsthat the source of these problems differs.For the case of verticalintegration, t is relation-specific ssets. For the legislature,however,incentiveproblems arise because there is no underlyingmedium ofexchangeso thattradingvotes requires futurerelianceand hence theopportunities or reneging see n. 10). Moreover, s Ferejohn (1974b)has shown, it is not clear whether one can exist, given the peculiarexternalities ssociated with vote trading.We have pursued in this paper onlyone explanationforenforcingtrades. t is useful,therefore, odiscuss a numberofpotential lterna-tives, hough a full-scale mpirical nvestigationsbeyondthescope ofthispaper. The first lternative s that ex post opportunismeither snegligible r is handled in some other way,thereby llowing xchangetotake place throughtrading.Accordingto thisview, he existenceofcommittees s epiphenomenal, perhaps representingsome formal(though unimportant) recognitionof those legislatorswho have infact "bought" influence over particular ssues. An empiricaltest be-tween this explanation and our model mightfocus on the respon-sivenessof policy choice to membersof the committee. n an explicitexchange setting, arge changes in the preferencesof membersoffthecommittee hould lead to changes in policy.Under thelegislativecommittee model, committee veto rights mplythat policy is moreinsulated from changes of this type,and hence we should observepoliciesto be less responsive.A second competing explanation is perhaps more interesting. ar-ties,ruled out by assumption n our model, offer n obvious alterna-tive for institutionalizingnd enforcingtrades. The historicalevi-dence forthe U.S. Congress suggeststhatstrong partiesand strongcommittees, s institutionalunderpinningsof legislativeexchange,are substitutes.When partiesweremore powerful e.g., at the turnof


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INDUSTRIAL ORGANIZATION 159thecentury), ommittees, houghimportant, id not have such clear-cut rights s in modern times.Seniority, or example, was regularlyviolated by party leadership in allocating the leadership positionswithin ommittees. mportantly, irtually very nstitutional hangeduring this centurythat has made committee rights stronger hascome at the expense of parties and centralized eadership.This suggests a natural extension of our approach to the case ofpartygovernment which ncludes the BritishParliament n additionto the House of Representatives f thepast). Strong partiesare char-acterized by controlover importantresources such as entry nto thecompetition or ndividual seats and thepositionsof power within helegislature e.g., the ministerialpositions in Britain), and they wieldconsiderableinfluenceover the distribution f legislative read: elec-torallyuseful)benefits.Parties, ike firms, an build typesof reputa-tionsdifferent romthose of theindividualswho make them up (see,e.g., Kreps 1984). To the extent thattheyare able to influencethebehaviorof theirmembers throughdistribution f resources,partiespotentially rovide an alternativemeansof enforcing greements.Wehope to extend our approach in thefutureto yield results bout theinstitutions nderpinning legislativeexchange in thiscontext.28Animportant ssue of this research concerns the circumstances avoringthe survivalof one mechanism over the other.One limitation four analysis s that,while we argue that egislativerules mitigatecertaincontractual problems, we do not explain howtherules themselves urvive. ince majoritiesmay altertherules,whatprevents hebreakdown of cooperationthattakes on a slightly iffer-ent form? n circumstancesnwhichreneging, ay,would occurwith-out rules, what prevents ndividuals from first otingto change therules and then reneging? An extensive nvestigation f this issue isbeyond the scope of this paper. However, there appear a varietyof circumstancesunder which the rules will survive a breakdownwhereas cooperation withoutrules would not. For example, ifmanydifferent olicy urisdictions are governed by the same set of rules,then a singleset of rules may linkbehavior in one area with that nanother.Hence incentives o renege in one area do notautomaticallyresult n corresponding ncentives o change rules that governmanyareas.29Since itclearlytouches on issues thathold for a large varietyoforganizations, his question is worthy f a separate investigation.

28 For an interesting eginningon thisproblem, see Leibowitz and Tollison (1980).29 As a second set of circumstances,we single out thenotion of leadership exploredby Calvert 1986) in his extensionof the Kreps and Wilson 1982) model to legislatures.Calvert studied circumstances n which a particular ndividual is given resources byother ndividuals.With theseresources,he then,e.g., polices the behavior ofhisfollow-ers. In principle, hismechanism mightbe used to preventthe breakdown ofcoopera-tion in certain circumstances nd thereforebe valuable ex ante to members.


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i6o JOURNAL OF POLITICAL ECONOMYThe empirical videncesupports four mplications hatfollowfromour model of legislative nstitutions ut do not follow froma simplemarket exchange mechanism. First, committees are composed of"high demanders," that s, individuals with greater than average in-terest n the committee'spolicy urisdiction. Second, the committeeassignmentmechanismoperates as a bidding mechanism hat assignsindividuals to those committees hey value most highly.Third, com-mitteemembers gain a disproportionate hare of the benefitsfromtheirpolicy area. This appears to hold across widelydiffering olicyjurisdictions. Fourth, there exists importantevidence supporting acomparative taticspredictionofthe model, namely, hat s theinter-

ests representedon thecommittee hange, so too will policy,with heinterests f non-committee members held constant. Evidence sup-porting hisproposition xists nseveral regulatory reas; future estswillreveal the robustnessof the results.In sum, the institutions f Congress appear remarkably uited tolegislators' reelection goals. Their specific form appears to haveevolved to reduce problems that also arise in market exchange,namely,problemsofmeasurement,moralhazard, and opportunism.ReferencesAlchian,Armen,and Demsetz,Harold. "Production, nformationCosts,andEconomic Organization."A.E.R. 62 (December 1972): 777-95.Arnold,R. Douglas. Congressnd theBureaucracy: Theory f nfluence.NewHaven, Conn.: Yale Univ. Press, 1979.Axelrod, Robert M. The Evolutionof Cooperation. ew York: Basic Books,1984.Barke, RichardP., and Riker, WilliamH. "A PoliticalTheory of Regulation

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