The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets

TLDR

Legislative institutions, like markets, are shaped by representatives’ reelection goals and transaction costs. The paper develops a theory of legislative institutions analogous to firm and contractual theories and outlines three key conclusions. The findings show that legislative institutions enforce bargains among legislators, that nonmarket exchange mechanisms are superior to market exchange in legislatures, and that the committee system restricts coalition formation on specific issues.

Abstract

This paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions. Like market institutions, legislative institutions reflect two key components: the goals or preferences of individuals (here, representatives seeking reelection) and the relevant transactions costs. We present three conclusions. First, we show how the legislative institutions enforce bargains among legislators. Second, we explain why, given the peculiar form of bargaining problems found in legislatures, specific forms of nonmarket exchange prove superior to market exchange. Third, our approach shows how the committee system limits the types of coalitions that may form on a particular issue.