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Political rents under alternative forms of judicial review
Accepted Manuscript Title: Political Rents under Alternative Forms of Judicial Review Author: Leyla D. Karakas PII: DOI: Reference:
S0144-8188(17)30034-0 http://dx.doi.org/doi:10.1016/j.irle.2017.08.004 IRL 5776
To appear in:
International Review of Law and Economics
Received date: Revised date: Accepted date:
26-10-2016 18-5-2017 25-8-2017
Please cite this article as: Leyla D. Karakas, Political Rents under Alternative Forms of Judicial Review, (2017), http://dx.doi.org/10.1016/j.irle.2017.08.004 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.
• The allocation of political rents in bills subject to judicial review is studied. • Concrete judicial review may lead to less rent diffusion among the political parties. • Abstract judicial review may favor the parties that command large status-quo rents.
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• These results inform the debates on the effectiveness and consequences of review.
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Political Rents under Alternative Forms of Judicial Review
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Leyla D. Karakas∗
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Abstract
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August 29, 2017
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Opponents of bills that are approved in the legislature frequently pursue subsequent judicial challenges based on constitutional grounds in order to overturn them. Such challenges may occur through a specific legal case as in the U.S. (concrete judicial review) or through the petition of an opposition party at the constitutional court as in many parliamentary democracies (abstract judicial review). While the decision-making process of high court justices has been widely studied, the effect of anticipated judicial review on the composition of bills introduced in the legislature has received limited attention. This paper theoretically analyzes how the institutions of concrete and abstract judicial review influence the political rents associated with a bill when the justices decide solely based on the bill’s ideological component. The results indicate that abstract review may lead in equilibrium to a greater diffusion of rents across the political spectrum through its anticipatory effect, while the rents under concrete review are more concentrated among the legislative winning coalition. When this is the case, abstract review improves the equilibrium payoff of the party that would be left out of the legislative winning coalition under concrete review and favors those parties that command large rents in the status-quo.
Keywords : Judicial Review, Legislative Bargaining, Supreme Court. JEL Classification : C78, D72, D78, K40. ∗ Department of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University, Syracuse, NY 13244. Email: [email protected]. I am grateful to the editor Scott Baker and an anonymous referee whose suggestions have been instrumental. I would also like to thank Kristy Buzard, Hugo Jales, Michelle Liu, Piyusha Mutreja, Abdul Shifa and the seminar participants at the 2017 Meeting of the European Public Choice Society for their thoughtful comments.
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1
Introduction
Judicial challenges to the constitutionality of a bill frequently follow its acceptance in the legislature. In the U.S., judicial review is initiated by a specific legal case and hence is termed concrete review. For example, in National Federation of Independent Business v. Sebelius, the U.S. Supreme Court (SC) upheld the central provisions of the Affordable
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Care Act that President Obama had signed into law in 2010. In contrast, the consti-
tutional courts (CC) of parliamentary democracies perform judicial review once the bill
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has been referred to them by, for example, a political institution, a civil society organization or an opposition party. Since the review is conducted in the absence of a specific
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legal case, it is called abstract review. For example, Italy’s CC ruled in January 2017 against a part of the country’s 2015 electoral law that had introduced run-off elections.1 While each bill in these examples carries an ideology that justices care about, it also
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implies a certain distribution of economic benefits among the interested parties. This paper compares the effects of concrete and abstract judicial review on the allocation of
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these economic benefits across the legislature.
Previous studies of higher court justices’ rulings have found evidence that both ideological leanings and strategic considerations affect how justices decide on a case.2 In
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light of this evidence, the question of how a looming judicial review process impacts
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the composition of the bills passed in the legislature has received some attention.3 In this literature, a bill is frequently modeled as unidimensional, consisting solely of an
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ideology. However, in reality, a bill approved in the legislature following complex negotiations has implications for the allocation of its associated economic benefits across the political spectrum. Although these political rents may be separate from ideology, they are nonetheless bundled together with it in the same bill. Thus, when justices vote to uphold or reject a bill, they inadvertently also vote on one of its components over 1 There are exceptions to this rule in parliamentary democracies. For example, France allows its Constitutional Council to perform a priori review, i.e. to rule on the constitutionality of a bill before it is voted in the parliament. 2 Such strategic considerations include, among others, aversion to being overturned by further legislative action and protecting the prestige and legitimacy of their court. For an overview of the literature, see Segal and Cover (1989), Gely and Spiller (1990) and (1992), Songer and Lindquist (1996), Segal (1997), Rogers (2001), Bergara, Richman and Spiller (2003), Langer (2003), Clark (2009), Segal, Westerland and Lindquist (2011). 3 Vanberg (1998) and Marks (2015) are two prominent examples.
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which they do not have fundamental preferences. Understanding such multi-dimensional implications of judicial review is important for informing the debates on the comparative effects of abstract and concrete review on policy along with their welfare consequences for the interested parties. For instance, in January 2016, the SC heard arguments in the case of Friedrichs v. California Teachers Association, in which a group of public employees challenged Cali-
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fornia’s “agency fee” laws that require them to pay union fees for collective bargaining.4
The justices’ comments during the session suggested that the case would be determined
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based on the court’s ideological division. However, while the power of public unions has always been an ideological issue, the decision would also have significant economic reper-
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cussions for various stakeholders, including their political representatives. In the end, the decision landed in favor of the public unions after a vote predictably split based on
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ideology.5 Similarly, the SC ruled in the case of Michigan v. Environmental Protection Agency (EPA) in 2015 that the EPA had overstepped its authority in regulating coal plants. While the decision reflected the court’s ideological divide, the plaintiffs’ main
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argument in the case was the absence of a careful cost-benefit analysis by the EPA and the fact that these regulations would impose annual costs of $9.6 billion on the coal industry. The ruling implies that the EPA has to reorganize its regulatory scheme.6
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Motivated by such cases that suggest the policy effects of judicial review are not only
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ideological, this paper studies the effects of concrete and abstract review on the political rents associated with a bill by focusing on an environment in which the justices rule
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solely based on their ideological preferences. More specifically, do the political parties that are ideologically aligned with the court receive a more favorable treatment in terms of rents? Which parties benefit from judicial review and which ones are hurt by it? How do the answers to these questions depend on whether the review is concrete or abstract? To address these questions, I build a model of strategic interactions between a legislature and a court with the authority to rule on the constitutionality of a bill following its 4
Liptak, A. (2016, January 11). Supreme Court Poised to Deal Unions a Major Setback. The New York Times. 5 Liptak, A. (2016, March 29). Victory for Unions as Supreme Court, Scalia Gone, Ties 4-4. The New York Times. 6 Liptak, A. and Davenport, C. (2015, June 29). Supreme Court Blocks Obama’s Limits on Power Plants. The New York Times.
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initial approval in the legislature. I consider both concrete and abstract review in order to compare the effects on political rents of alternative institutions. In the first stage, political parties bargain over a bill that consists of an ideology and a rent allocation across the legislature. If the bill is accepted, a judicial challenge against it is automatically initiated under concrete review. In contrast, under abstract review, a judicial challenge
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requires that at least one party has voted to reject the bill in the legislature. Thus, bills passed with unanimity are immune from judicial challenges under this institution. In
the second stage, justices rule on the constitutionality of the bill based on their ideolog-
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ical preferences. Under both institutions, the bill becomes the law if the court votes to uphold it. However, if the justices vote to reject, whether this means the end for this bill
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depends on the ability of the legislature to override the judiciary’s decision. Specifically, I study both weak-form systems in which the legislature can bypass the judiciary by considering another bill and strong-form systems in which the judiciary has the final
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word.7 Under the former, if the justices vote to reject, a final stage is reached in which the legislature reconvenes, reflecting the legislative branch’s ability to overturn judicial
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rulings. In contrast, the game ends with the judiciary’s decision in the latter. The main result of the paper indicates that even though the justices do not have fundamental preferences over the allocation of rents, the threat of their review affects this
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allocation under certain conditions relative to the equilibrium that would be observed
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in its absence. This effect may materialize directly through the judiciary’s acceptance constraint in the proposer party’s problem, in which case the rents awarded to the coali-
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tion partner weakly decrease in its ideological proximity to the court’s median justice under certain parameter restrictions. Alternatively, in a weak-form system in which the legislature can reconvene following a negative ruling, the threat of judicial review may prompt the proposer to bypass the judiciary and start a new round of bargaining with a potentially new proposer and a new winning coalition. For abstract review, a similar indirect channel exists in which this threat may prompt the proposer to secure a challenge-proof unanimous coalition. Establishing the effects of judicial review on both the ideological and the rent allocation bargains struck in the legislature sheds light on some recent episodes such as 7
The institutional details of this dichotomy will be elaborated on in the following sections.
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the aforementioned decision by Italy’s CC or the constitutional changes in Turkey that replaced the country’s parliamentary system with a presidential one. In the former, the CC ruled against the run-off system while finding other aspects of the law that introduced some majoritarian elements to the country’s proportional representation electoral system constitutional. These “majoritarian corrections” were weaker compared to those
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the CC had previously ruled against and represented a compromise by Prime Minister Renzi to gain the approval of both the CC and the smaller parties that made up its
governing coalition. This ideological bargain coupled with political rents in the form of
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future membership in the governing coalition secured the law’s passage in the legislature and approval in the CC.8 In contrast, the latter episode represents an example of
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ideological alignment between the CC and the majority party in the parliament. Unable to ensure passage in the legislature with only votes from it own party, Turkey’s ruling
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party offered political rents in the form of future posts in the presidential administration to one of the opposition parties that had previously declared its ideological opposition to the law, overcoming the legislative hurdle.9,10
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Comparisons of concrete and abstract review indicate that their effects on political rents are identical, relative to the equilibria that would be observed in their respective absences, whenever the equilibrium bill has the judiciary’s approval or the final bar-
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gaining stage is reached on the equilibrium path. On the other hand, there exist more
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parties with a positive rent share under abstract review than there would be under concrete review only if the ideological difference between the court’s median justice and the
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proposer party is sufficiently great and that between the political parties is sufficiently small such that the equilibrium bill is unanimously agreed-upon in the legislature. Thus, under certain conditions, abstract review leads to an equilibrium with a greater diffusion 8
Politi, J. (2017, January 26). What are the consequences of Italy’s constitutional court ruling? The Financial Times. 9 Shaheen, K. (2017, January 19). Turkey’s parliament set to approve sweeping new powers for president. The Guardian. 10 The framework in this paper also offers insights into questions such as whether there would need to be protections for the insurance industry in the Affordable Care Act if it had contained a public option that would likely be found constitutional by the SC. Widespread reports at the time indicated that the more centrist Democrats in Congress opposed a public option during the negotiations based on a combination of ideological aversion and pressure from insurance companies that stood to lose economically from it. Had the sponsors of the bill insisted on the public option instead of including the individual mandate in its place, the results of this paper suggest that the opponents would have to be compensated in political rents to ensure the bill’s passage.
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of rents across the political parties, whereas the rents are more concentrated among the winning coalition under concrete review. Overall, these results imply that analyses of policy consequences of judicial review should focus not only on a bill’s ideology but also on its associated allocation of economic benefits across the legislature. This is because the multi-dimensionality of bills
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implies that the ideological restrictions the judiciary imposes on the bargains struck in the legislature may also affect the political rents that accrue to the parties as part of the legislative process. That judicial review also impacts the allocation of political rents
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in the legislature complements the main findings in the literature, in particular Vanberg (1998), that establish the effect of abstract review on fostering ideological compromise
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between the political parties.11 Specifically, the results here emphasize the important role rent payments may play in addition to ideological compromise in securing a bill’s
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approval or in bypassing the judiciary.
The insights from this paper regarding the channels through which judicial review impacts legislative bargains can also inform the debates on the relative effectiveness of
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concrete and abstract review on policy. While the results indicate that the effects of the two institutions on the bills passed in the legislature are identical whenever judicial review occurs in equilibrium, they also establish an indirect, or anticipatory, channel
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through which abstract review can impact policy. Specifically, a proposer party’s ability
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to prevent judicial review by forming a unanimous coalition in the legislature under abstract review implies that the effects of the judiciary may work through its anticipatory
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effects rather than the more direct and observable channels. This paper highlights the importance of taking such indirect effects into account for both empirical and qualitative analyses of the comparative effects of the two judicial review institutions. Finally, the results here suggest that any evaluation of the welfare consequences of judicial review must also take rent payments into account as an additional tool of legislative bargaining. Specifically, the results show that the party that would be left out of the winning coalition with a zero rent share under concrete review benefits from abstract review when the equilibrium features a unanimous coalition. The analysis also indicates 11 The relationship of this paper to Vanberg (1998) and other closely-related studies will be discussed in more detail in the following section.
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that this party commands relatively large status-quo rents. Furthermore, while abstract review would unambiguously benefit such a party relative to its equilibrium payoff in the absence of judicial review, concrete review may make it worse-off if it has sufficient ideological distance from the court’s median justice. Together, these findings on the welfare consequences of concrete and abstract review imply that the type of judicial review has
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distributional consequences within the legislature. Along with the potentially greater diffusion of rents this paper predicts would be observed under abstract review compared
to the more concentrated rents under concrete review, they can inform the debates on
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the relative merits of the two institutions.
The rest of the paper is organized as follows: The following section discusses the
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literature. Section 3 gives an overview of the institutional details for judicial review that clarifies how these details map to the paper’s modeling choices. Section 4 introduces
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the model and the equilibrium concept. Sections 5 and 6 respectively characterize the equilibrium under concrete and abstract judicial review. Section 7 compares these two
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institutions based on their policy and welfare consequences. Section 8 concludes.
Related Literature
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There exists a large literature on decision-making at higher courts that focuses on the
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ideological and strategic motivations of the justices. These studies have found strong evidence for the co-existence of ideological and strategic judicial decision-making, as
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documented in Bergara, Richman and Spiller (2003) for case rulings and in Caldeira, Wright and Zorn (1999) for agenda-setting.12 Starting with the seminal works of Gely and Spiller (1990) and Marks (2015), numerous studies have contributed to our understanding of SC decision-making within the constraints of various institutions. For instance, Rogers (2001) and Vanberg (2001) model the interaction between the SC and the Congress using an incomplete information framework with regards to judicial preferences. Clark (2009) shows that the justices’ preference for preserving their institutional legitimacy have led them to issue 12
Some studies in this literature include Segal and Cover (1989), Gely and Spiller (1992), Songer and Lindquist (1996), Segal (1997), Langer (2003), Carrubba, Gabel and Hankla (2008), Segal, Westerland and Lindquist (2011) and Garoupa and Grembi (2015).
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restrained rulings during times of public discontent with the SC. As briefly discussed in the Introduction, these studies treat the legislative branch as a unified actor and do not consider the potential impact of judicial review on the content of the agreed-upon bills. This paper departs from the existing literature by studying the implications of the justices’ ideological decision-making on legislative dynamics. In this regard, the two
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closely-related studies to this paper are Winter (1996) and Vanberg (1998). Winter (1996) analyzes a non-cooperative bargaining game in which some players
are endowed with veto power and shows that non-veto players receive a zero payoff in
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equilibrium. As the final arbitrator on legislation in strong-form systems, the median justice of the court can be interpreted as a veto player who always receives at least her
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status-quo ideological payoff. However, this paper also models weak-form systems in which the veto power of the judiciary is diminished, thereby allowing for an analysis of
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the various roles the judiciary might play under different political systems. In addition, in a departure from Winter (1996), the presence of ideology along with rent payments as a bargaining tool allows for the possibility that non-proposer parties may become part of
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the legislative winning coalition despite receiving zero rent shares in equilibrium. This is due to the fact that a party’s gain is necessarily another party’s loss in the Winter (1996) setting, whereas this paper shows that mutually beneficial gains are possible, for
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instance if the parties are ideologically close and dislike the status-quo.
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Vanberg (1998) studies the effect of abstract review on the content of the proposals introduced in the legislature. Within a legislative bargaining model in which the ini-
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tiators of judicial review may be punished in a subsequent election if the bill is found constitutional, the author characterizes the equilibrium proposals with respect to the policy polarization between the two parties and the CC. Although this paper focuses on a component of a bill over which the justices do not have fundamental preferences and thus is different from Vanberg (1998) in its question, it is still closely related to it in its modeling structure. Corroborating the central finding of Vanberg (1998), this paper also demonstrates that judicial review encourages ideological compromise in the legislature, with this effect being more pronounced under abstract review due to the power it grants the political parties to pass challenge-proof bills with unanimity. However, the bundling of ideology and rents modeled in this paper yields richer insights than
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the unidimensional setting of Vanberg (1998). While the right ideological compromise is both necessary and sufficient in Vanberg (1998) in order to pass legislation, it may not be sufficient here as the smaller parties ask for additional rent compensation in order to attain their status-quo payoffs. This setting allows for characterizing the conditions under which rent compensation complements ideological compromise in equilibrium and
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offers insights into episodes such as the previously discussed ruling of Italy’s CC. There also exists extensive legal scholarship on the comparative merits of concrete and abstract review. Studies have evaluated these two institutions based on, for ex-
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ample, the democratic legitimacy of ruling in the absence of a specific legal case, the extent of legal certainty they afford or the ability they give to the justices to grant or
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deny review.13 While it is beyond the scope of this paper to comment on these debates, insights can be gained for the branch of this literature that focuses on the policy and
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welfare consequences of judicial review. For instance, an implication of the results here is that the anticipatory effects of abstract review, manifested in unanimous coalitions formed in response to a hostile judiciary, exist but are difficult to observe. Therefore, it
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is important for comparative studies of the policy effects of judicial review to consider any potential unobserved effects.
Finally, this paper aims to contribute to a political economy literature on the polit-
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ical allocation of public resources, prominent examples of which include Battaglini and
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Coate (2007), Besley, Ilzetzki and Persson (2013) and Bowen, Chen and Eraslan (2014).14 Building on the seminal work of Baron and Ferejohn (1989), the present model is related
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to Jackson and Moselle (2002) in considering two-dimensional bills consisting of an ideology and a distributive component. It also draws upon results from bargaining theory such as Banks and Duggan (2006). 13
For example, see Kommers (1994) and Finck (1997). Other related papers in this literature that focus on institutions constraining legislative policymaking include Diermeier and Feddersen (1998) that studies the vote-of-confidence procedure and Karakas (2016) that analyzes the constitutionally-triggered referendum process. 14
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3
An Overview of Concrete vs. Abstract Judicial Review
Judicial review constitutes an integral part of a country’s system of checks and balances. It gives courts the authority to rule on whether bills passed in the legislature comply with the country’s constitution. The judicial entity with this authority may be the CC as in many parliamentary systems or the country’s highest appeals court such as the SC.
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In most common-law system such as the U.S., judicial review takes place based on
a concrete legal case between two parties. In the absence of such a case, the courts
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have no basis to review the compliance of a legislative act with existing legislation or
the constitution. In contrast, most parliamentary systems modeled after European po-
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litical institutions feature abstract review, which gives courts the power to rule on the constitutionality of a bill without a specific legal case. In addition, there exist hybrid constitutional systems that allow for both concrete and abstract review.15
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This paper assumes that a bill that passes in the legislature is automatically challenged under concrete review, because it is reasonable to expect that a legal case by
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an individual or entity affected by the bill’s provisions will eventually proceed through the country’s legal system for a final ruling. In contrast, a challenge has to be initiated under abstract review by an authorized party at the CC. While there exist different sets
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of actors across judicial systems with this authority, such as regional governments, lower
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courts and civil society organizations, the most common utilizers of abstract review are the opposition parties in the legislature. Therefore, I assume that abstract review re-
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quires at least one dissenting party in the legislature. The democratic deficit associated with the authority of unelected judges to rule on bills agreed-upon by elected representatives is a much-discussed issue in the legal literature. While this paper does not comment on this discussion, this literature has provided a useful framework for analyzing constitutional systems that differ in the extent to which the legislature defers to the judiciary. Specifically, while judicial decisions are deemed the final word on a bill in some systems, either due to their explicit constitutional rules or tradition, the legislature takes the more prominent role in others by claiming the right 15
Austria, Belgium, Italy and Spain are examples of European countries with abstract review. Outside of the U.S., Latin American countries such as Bolivia, Mexico and Venezuela and European countries such as Sweden and Finland also feature concrete review.
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to override negative court rulings. The prevailing terminology of “strong-form judicial review” for the former and “weak-form judicial review” for the latter in the legal literature owes to Mark V. Tushnet and will also be used here.16 Tushnet (2006) defines weak-form judicial review as “a form of judicial review in which judges’ rulings on constitutional questions are expressly open to legislative revi-
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sion in the short run.”17 In contrast, strong-form judicial review represents systems in which the legislature has neither the explicit nor the implicit power to challenge the
judiciary’s constitutional rulings. This is because overriding the judiciary in strong-
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form systems requires either constitutional amendments, which are difficult to pass and thus are rarely observed, or court-packing plans that aim to change the composition of
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the court, which also face stiff resistance and thus are not common.18 The U.S. and Germany, which respectively conduct concrete and abstract review, are prominent ex-
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amples of strong-form systems.19 In contrast, Canada, New Zealand and Israel represent weak-form systems in which the parliaments have explicit authority to override judicial rulings. Poland constitutes an example of transition from a weak-form system in which
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the parliament could overturn a judicial ruling with a two-thirds supermajority to a strong-form one in 1997.
To model these institutional details, this paper assumes that judicial review is the
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final stage of the game under strong-form systems, whereas another legislative bargain-
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ing stage follows the judiciary’s rejection of a bill under weak-form systems. The former assumption captures the institutional role of the judiciary as the final decision-maker
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on contested legislation. On the other hand, the assumption that the outcome of the final bargaining stage prevails under weak-form systems captures the supremacy of the legislature over the judiciary. The drivers of this hierarchy may be either implicit as observed in autocratic systems with non-independent judiciaries or explicitly enshrined in the country’s constitution. For example, Canada’s Charter of Rights, Section 33, gives the parliament the power to enact bills that do not comply with CC rulings. The distinction between weak and strong-form systems is an important one to make in this 16
See Tushnet (2003) and (2006) for a more extensive discussion. Tushnet (2006), p.2. 18 See Ferejohn, Rosenbluth and Shipan (2009) for a more extensive discussion. 19 See Finck (1997) for a comparative study of the two countries’ judicial systems. 17
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paper, because the equilibrium bill naturally depends on whether there exists an additional stage after the judiciary’s ruling in which the legislature can reconvene. Moreover, allowing for both weak and strong systems extends the applicability of the theoretical results to a wider range of countries. Refraining from a discussion on which institution should be adopted, this paper takes these institutions as given to analyze how they affect
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the allocation of economic benefits embedded in legislative bills. Finally, it is important to recognize the “constitutional complaint”, which gives individuals the right to appeal directly to the CC in the absence of a legal case, alleging
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a violation of their fundamental rights. This institution is mostly observed in European systems such as Spain and Germany.20 However, since this mechanism falls outside the
The Model
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boundaries of the present model, it is not considered here in the interest of simplicity.
I consider two alternative models of judicial review for bills passed in a legislature:
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concrete review and abstract review. Under both institutional settings, judicial review follows the initial stage of legislative bargaining over a bill. The main difference between the two models is in how judicial review is initiated: While I assume that it is automatic
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in the concrete review model, this stage is reached in the abstract review model if and
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only if a party has voted to reject the bill.21 In order to study how the ability of some legislatures to override judicial decisions affects the equilibrium, I compare the rent
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allocations under concrete and abstract review first for strong-form systems in which the legislatures do not have this power and second for weak-form systems in which they do. Specifically, while judicial review is the final stage of the game for the former, the legislature reconvenes after the judiciary’s rejection in the latter. Let N denote the set and |N | the number of political parties in the legislature. For 20
See Corkin (2014). The assumption that a party opposed to the bill always initiates abstract review is only for the purpose of simplifying the notation and does not change or diminish any of the model’s insights. This is because in an environment in which initiating review is an endogenous decision and is costless, an opponent of the bill would challenge it at the court if and only if its status-quo payoff were at least as great as its payoff from the proposed bill for a strong-form system, which is equivalent to the necessary and sufficient condition for voting to reject in the first place. A similar logic also applies to weak-form systems. 21
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simplicity, I only focus on legislatures of two and three parties, although the results can be generalized. In the initial bargaining stage, a party is recognized to propose a bill z according to a probability distribution in which each party i ∈ N has an exogenous |N | probability pi > 0 of being selected, where i=1 pi = 1. The other parties simultaneously vote on this bill z = (x, y) ∈ [0, 1] × Y , which consists of an ideology x ∈ [0, 1] and a
Y = {y :
|N |
yi ≤ 1 and yi ≥ 0 ∀ i ∈ N },
(1)
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rent allocation y from the feasible set
where yi denotes party i’s share of the rent pie. There also exists a status-quo bill
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s = (q, y q ) ∈ [0, 1] × Y . I assume that party i’s preferences over a bill z are represented by the quasi-linear utility function
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ˆi )2 + αyi , ui (z) = −(x − x
(2)
is no discounting of future payoffs.
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where x ˆi denotes party i’s most-preferred ideology and α > 0 is some fixed weight. There In the first stage, if the legislature votes to reject the proposal according to a simple
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majority rule, the game ends and the status-quo bill prevails. If the bill is accepted, the
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judicial review stage automatically begins in the concrete review model regardless of the bill’s level of acceptance. In contrast, in the abstract review model, judicial review is
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initiated if and only if a party has voted to reject the bill in the legislature. Thus, bills passed with unanimity are immune to judicial challenges in this model. When this is the case, the game ends and the payoffs are distributed. In the judicial review stage, justices rule on whether to uphold the bill based on their ideological preferences. Let J denote the set and |J| the number of justices in the court, where |J| is odd. I assume that a justice j’s most-preferred ideology is given by x ˆj ∈ [0, 1] and that her preferences over a bill are represented by the utility function ˆj )2 . Note that the justices do not care about the rent allocation y uj (z) = −(x − x included in the bill z. If the justices vote to uphold the bill according to a simple majority rule, it becomes
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the law and payoffs are distributed.22 If the justices reject the bill, the status-quo prevails in strong-form systems, whereas a rejection initiates a final bargaining stage in which the legislature can override this ruling by passing new legislation in weak-form systems.23 At the beginning of this final stage, a new proposer is realized according to the same probability distribution. The recognized party i proposes a new bill zi ∈ [0, 1]×Y , which
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becomes the law if it passes in the legislature according to the same simple majority rule. If not, the status-quo bill prevails. Figure 1 illustrates the timing of events.
Without loss of generality, fix party 1 as the party recognized as the proposer in
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the initial bargaining stage. A pure initial bargaining strategy for party i consists of a proposal z ∈ [0, 1] × Y if i = 1 and an acceptance rule ai : [0, 1] × Y → {0, 1} for all
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i = 1 such that ai (z) = 1 indicates that party i votes to accept the proposal z in the first stage and ai (z) = 0 indicates that it rejects.24 In addition, for a weak-form system, a pure final bargaining strategy for party i consists of another proposal zi ∈ [0, 1] × Y
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if i is the newly recognized proposer and a final acceptance rule ai : [0, 1] × Y → {0, 1} for all remaining parties i where ai (zi ) is similarly defined. Finally, a judicial review
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strategy for justice j is a rule vj : [0, 1] × Y → {0, 1} such that vj (z) = 1 indicates that justice j votes to uphold the proposal z and vj (z) = 0 indicates that she votes to reject. |N |
|J|
Let σ ≡ (σ1 , {σi }i=2 , {σj }j=1 ) denote a strategy profile, where σ1 = z for the initial
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proposer party, σi = ai for all i = 1 and σj = vj for all j ∈ J in strong-form systems.
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For weak-form systems, we have σ1 = (z, z1 , a1 ), σi = (ai , zi , ai ) for all i = 1 and σj = vj for all j ∈ J. Given the equilibrium behavior of every other player, an equilibrium to
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this game consists of optimal strategies for each party during both the initial and the final bargaining stages (when it exists), and optimal strategies for each justice during the judicial review stage. The following formally defines a Subgame-Perfect Nash equilibrium of this model. The equilibrium conditions denoted with a prime apply to weak-form systems.
|N |
|J|
Definition 1. A strategy profile σ ≡ (σ1 , {σi }i=2 , {σj }j=1 ) constitutes a Subgame22
Simple majority is a widely-accepted rule for judicial decision-making across courts. There may be reasons why a legislature may decide not to override the judiciary despite having the authority to do so. For example, the justices may be highly trusted by the public. While these may be relevant concerns, I do not model them here in the interest of generality. 24 I assume that a party votes to accept a proposal if it is indifferent. 23
14
Page 15 of 38
Bill z prevails under abstract review
ip t
Status-quo bill s prevails
an
us
Ac ce p Status-quo bill s prevails
Justices reject
M
Judicial review
te
Bill fails
Bill passes
d
Proposer party proposes z
cr
Bill passes with unanimity
Justices accept
Status-quo bill s prevails if legislature can’t override
Legislature rejects
New proposer party i proposes zi if legislature overrides
Legislature accepts
Bill z prevails
Bill zi prevails
Figure 1: Timing of Events.
15
Page 16 of 38
Perfect Nash equilibrium if and only if the following conditions are satisfied: (E1)’ In the final bargaining stage in which party k ∈ N is recognized as the new proposer, ai (zk ) = 1 for i = k if and only if ui (zk ) ≥ ui (s). Party k’s proposal zk solves
subject to ui (zk ) ≥ ui (s) such that
i=k
uk (zk )
ai (zk ) ≥
ip t
max
zk ∈[0,1]×Y
|N |−1 2 .
cr
(E2) Given the proposal z, vj (z) = 1 for justice j if and only if uj (z) ≥ uj (s). |N |
i=1 pi uj (zi ).
us
(E2)’ Given the proposal z, vj (z) = 1 for justice j if and only if uj (z) ≥
(E3) For both concrete and abstract review, ah (z) = 1 for h = 1 if and only if uh (z) ≥
an
uh (s).
(E3)’ For both concrete and abstract review, ah (z) = 1 for h = 1 if and only if uh (z) ≥ |J| uh (s) whenever the proposal z is such that j=1 vj (z) ≥ |J|+1 2 . Otherwise, ah (z) =
–
|N |
i=1 pi uh (zi )
M
1 for h = 1 if and only if
≥ uh (s) for concrete review and for abstract review if there
te
d
exist some i = h such that ai (z) = 0; |N | – uh (z) ≥ i=1 pi uh (zi ) for abstract review if a−h (z) = 1. (E4) For concrete review, party 1 proposes z ∗ ∈ argmax u1 (z) subject to |J|
Ac ce p ≥
|N |−1 2
and
j=1 vj (z)
argmax u1 (z) subject to
z∈[0,1]×Y
≥
z∈[0,1]×Y
i=1 ai (z)
|J|+1 2 .
For abstract review, party 1 proposes z¯ ∈
i=1 ai (z)
= |N | − 1 if and only if u1 (¯ z ) ≥ u1 (z ∗ ).
Otherwise, party 1 proposes z ∗ .
|N | (E4)’ For concrete review, party 1 proposes z ∗ if and only if u1 (z ∗ ) ≥ i=1 pi u1 (zi ). |J| Otherwise, party 1 proposes any z such that i=1 ai (z) ≥ |N 2|−1 and j=1 vj (z) < |J|+1 2 .
For abstract review, party 1 proposes z ∈ {z ∗ , z¯} such that u1 (z) = max{u1 (z ∗ ), u1 (¯ z )} |N | if and only if u1 (z) ≥ i=1 pi u1 (zi ). Otherwise, party 1 proposes any z such that |J| |N |−1 and j=1 vj (z) < |J|+1 i=1 ai (z) ≥ 2 2 .
16
Page 17 of 38
Condition (E1)’ requires that a party votes to accept a proposal during the final bargaining stage if and only if it weakly prefers the final proposed bill to the status-quo and that the final proposer’s bill maximizes its payoff subject to its coalition’s acceptance constraints. Conditions (E2) and (E2)’ impose the same acceptance criteria on the justices during the judicial review stage, except for the modification of the justices’
ip t
payoff in (E2)’ in case of rejection. As in condition (E1)’, conditions (E3) and (E3)’ impose optimal behavior on the non-proposer parties during the initial bargaining stage.
stage maximizes its expected continuation payoff.
Concrete Judicial Review Equilibrium
us
5
cr
Finally, conditions (E4) and (E4)’ require that party 1’s proposal in the initial bargaining
an
This section characterizes the equilibrium under concrete review for strong and weakform systems. For simplicity, the analysis is restricted to only two and three-party legislatures.25 For two-party legislatures, I assume that the approval of the non-proposer
M
party is required to pass a bill. Instead of the judiciary, I refer to the court’s median justice m, which is defined based on the median value of uj (z) − uj (s) for a given bill z
d
for strong-form systems and on the justices’ expected payoffs from the final bargaining |N | stage, i.e. based on the median value of uj (z) − i=1 pi uj (zi ), for weak-form systems. librium rent allocations:26
te
The following proposition establishes the effectiveness of concrete review on the equi-
Ac ce p
Proposition 1. In both strong and weak-form systems, even though the justices’ preferences are not defined over the set of feasible rent allocations, concrete review affects the equilibrium rent allocation relative to the equilibrium that would be observed in its absence only if the median justice’s acceptance constraint is binding. To gain an intuition for how the equilibrium effects of concrete review materialize, it is important to first understand the equilibrium in the absence of a binding judicial constraint. To do so, consider a two-party legislature in a strong-form system and 25
The former can be interpreted as representing a majoritarian electoral system, whereas the latter might represent a more fractionalized legislature observed under proportional representation systems. 26 All proofs are in the Appendix.
17
Page 18 of 38
suppose the parameter values are such that the solution to the proposer’s problem is interior. Then, the two parties required to pass a bill settle on a compromise ideology x∗ that lies at the midpoint between their most-preferred ideologies and positive rent shares that are allocated to achieve the partner’s indifference between the proposal and the status-quo bill. On the other hand, the status-quo bill and the parties’ ideologies
ip t
may rule out an interior solution, allocating the entire rent pie to one of the two parties in equilibrium. For example, if party 2’s status-quo payoff is sufficiently small such that
x1 , (1, 0)) < u2 (q, y q ) < u2 (x∗ , (1, 0)), the proposer receives all the rents in equilibu2 (ˆ
cr
rium and the parties agree on an ideology that is closer to x ˆ1 than to x ˆ2 .
When the judicial constraint is binding, the median justice m’s status-quo payoff
us
ˆ2 < x ˆm < q, then the pins down the equilibrium bill’s ideology. For example, if x ˆ1 < x optimal ideology x equals 2ˆ xm − q, which is obtained by bringing the median justice to
an
indifference between the proposal and the status-quo bill. In such cases, the equilibrium rent allocation may or may not be affected by concrete review, depending on the statusquo bill and the relative positions of the parties’ ideologies. Specifically, as stated in
M
Proposition 1, while a binding judicial constraint is necessary for the equilibrium rent allocation to be influenced by concrete review, it is not sufficient. To see this, consider a situation without judicial review in which u2 (x∗ , (0, 1)) > u2 (q, y q ) > u2 (x∗ , (1, 0))
d
so that the equilibrium bill includes the compromise ideology x∗ and a sufficient posi-
te
tive rent share for party 2 that buys its acceptance. If the median justice prefers the status-quo ideology q to the compromise ideology x∗ , then strong-form concrete review
Ac ce p
implies that the equilibrium ideology shifts from x∗ to another x that the median justice would accept. If the inequality u2 (x, (0, 1)) > u2 (q, y q ) > u2 (x, (1, 0)) also holds for this ideology x, then the solution is interior, involving a different rent allocation than the one that would have prevailed without a binding judicial constraint. On the other hand, for x1 , (1, 0)) ≥ u2 (q, y q ) so that the equilibrium bill in the absence of instance, suppose u2 (ˆ judicial review would equal z = (ˆ x1 , (1, 0)). If the median justice prefers the status-quo ideology q to x ˆ1 such that satisfying the judicial constraint implies moving away from x ˆ1 to another ideology x that party 2 would still accept with a zero rent share, then the equilibrium rent allocation remains unaffected by strong-form concrete review. In sum, strong-form concrete review affects the equilibrium rent allocation directly
18
Page 19 of 38
through the median justice’s acceptance constraint relative to the equilibrium that would be observed in its absence. While this direct channel also exists in weak-form systems in which the legislature is able to reconvene following the judiciary’s rejection of its bill, concrete review may also impact the equilibrium rent allocation in such systems through an indirect channel by inducing the proposer to bypass the judiciary. Specifically, the
ip t
proposer party in a weak-form system faces two options when offering a bill: to gain the judiciary’s approval, or to bypass it by making a proposal that the judiciary would reject in order to initiate the final bargaining stage. For the former option, how concrete
cr
review influences the equilibrium rent allocation is intuitively identical to strong-form
systems - the only difference is a technical one due to the change in the median justice’s
us
acceptance constraint that now reflects her expected utility from the final bargaining stage based on the parties’ recognition probabilities as the new proposer. In contrast,
an
the latter option implies that it is the mere presence of judicial review that influences the equilibrium rent allocation. Based on a comparison of these two options, the conditions under which the proposer would choose to settle with the judiciary in equilibrium
M
instead of bypassing it are presented in the following corollary:
Corollary 1. In the concrete judicial review equilibrium of a weak-form system, the proposer party 1 gains the judiciary’s approval when it is binding as opposed to bypassing
te
d
x1 − x ˆm )2 are sufficiently small. it if and only if p1 and (ˆ Note that the proposer never bypasses the judiciary if the median justice’s acceptance
Ac ce p
constraint is not binding since there exists a positive probability that it may no longer be the proposer during the final bargaining stage. In contrast, when this constraint is binding, Corollary 1 first indicates that the proposer settles with the judiciary if its probability of being recognized once again as the proposer during the final bargaining stage is too low. This is intuitive - the utility loss from giving in to the judiciary may be outweighed by the expected utility loss from foregoing proposer power. In fact, the analysis indicates that when p1 = 1 so that party 1 is fixed as the final proposer, it always bypasses the judiciary in order to not accommodate its median justice regardless of their ideological proximity. Second, for p1 < 1, not bypassing the judiciary requires that the proposer and the median justice have sufficiently similar ideologies, because 19
Page 20 of 38
ideological proximity decreases the utility cost to the proposer from settling. As the extent to which the median justice constrains the proposer’s optimal bill in the initial bargaining stage increases, party 1’s incentive to propose a bill that would ensure the final bargaining stage is reached on the equilibrium path grows stronger. Overall, Corollary 1 implies that weak-form concrete review may affect the equilib-
ip t
rium rent allocation relative to the equilibrium that would be observed in its absence in two separate ways: When the equilibrium bill passes both the legislature and the
judiciary, the effect of concrete review is direct (when it exists, as established in Propo-
cr
sition 1). The initial proposers in strong and weak-form systems behave identically in equilibrium. In contrast, if the parameters are such that party 1 has a sufficiently high
us
probability of being recognized again as the proposer and sufficient ideological distance from the median justice, the effect of concrete review on the equilibrium rent allocation
an
becomes indirect - while the final equilibrium bill does not incorporate the median justice’s acceptance constraint, the fact that the final bargaining stage is reached on the
6
M
equilibrium path is a consequence of its existence.
Abstract Judicial Review Equilibrium
d
This section characterizes the equilibrium under abstract review for strong and weak-
te
form systems. However, unlike the previous section, the analysis only applies to threeparty legislatures since the unanimity requirement for passing bills in a two-party legis-
Ac ce p
lature renders abstract review ineffective. Proposition 2. In a three-party legislature ruled by simple majority and subject to abstract review, the justices’ ideological preferences affect the equilibrium rent allocation in both strong and weak-form systems relative to the equilibrium that would be observed in their absence only if the median justice’s acceptance constraint is binding. The main difference between the analyses behind Propositions 1 and 2 is the existence of an additional channel through which the proposer can bypass the judiciary in both strong and weak-form systems by forming a unanimous coalition in the legislature. If the parameters of the model are such that the proposer either prefers gaining the approval of 20
Page 21 of 38
the judiciary or initiating the final bargaining stage over making its bill challenge-proof by securing unanimity in the legislature, then the equilibrium effects of concrete and abstract review are equivalent. However, in the opposite scenario, while the justices’ ideological preferences do not directly affect the equilibrium, the fact that the proposer chose to secure unanimity where only a simple majority would be sufficient for passage
ip t
in the absence of judicial review demonstrates the additional indirect channel through which abstract review may work. Similar to Corollary 1, the following result summarizes the conditions under which forming a unanimous coalition in the legislature becomes the
cr
proposer’s preferred alternative:
Corollary 2. Under abstract review, the proposer party 1 forms a unanimous coalition
us
ˆm )2 is in equilibrium if and only if the parties are sufficiently close ideologically, (ˆ x1 − x
an
sufficiently large and, in a weak-form system, p1 is sufficiently low.
Corollary 2 indicates that the additional channel through which abstract review may affect the equilibrium rent allocation, by inducing the proposer to form a unanimous
M
coalition, is observed in equilibrium if and only if settling with the median justice is ideologically undesirable, the unanimity bargain is not too costly and/or initiating the final bargaining stage is too risky for the proposer due to a sufficiently low probability of
d
being recognized again as the proposer. For such parameter values, the proposer prefers
on the equilibrium path.
te
to make its bill challenge-proof and ensure that the judicial review stage is not reached
Ac ce p
The following section builds on the previous results in order to compare the rent allocations that arise under concrete and abstract review and their welfare consequences.
7
Comparisons of Judicial Review Institutions
The previous two sections established the conditions under which judicial review may affect the equilibrium rent allocation even though the justices only care about the ideological component of a bill. Based on Propositions 1 and 2, the following proposition summarizes how this effect compares across concrete and abstract review.
21
Page 22 of 38
Proposition 3. In a three-party legislature ruled by simple majority, the number of parties receiving a positive rent share in equilibrium is higher under abstract review than under concrete review only if the bill is challenge-proof. Otherwise, the equilibrium rent allocations are identical between the two institutions. Recall that the main difference between the two types of judicial review is the pro-
ip t
poser’s ability under abstract review to secure a challenge-proof bill in the legislature
through unanimity. If the proposer finds this an unpalatable option due to the high com-
cr
pensation the third party requires, then the equilibrium of the two institutions would be
identical. However, if the equilibrium bill under abstract review allocates a positive rent
us
share to more parties than under concrete review, then this bill must be unanimously agreed-upon. When this is the case, both non-proposer parties must have required rent compensation in addition to the ideology they have consented to in order to become
an
part of the unanimous coalition. On the other hand, if the parties’ ideologies are sufficiently close such that the optimal ideology that would secure party 2’s acceptance also secures party 3’s acceptance without rent compensation, then we would not observe any
M
differences in the equilibrium rent allocation between concrete and abstract review even though the abstract judicial review equilibrium features unanimity in the legislature.
d
To gain an intuition for how the converse result may not hold, consider the following ˆ2 < x ˆ3 < q < x ˆm and suppose the median justice’s acceptance conexample: Let x ˆ1 < x
te
straint is binding such that the concrete judicial review equilibrium bill includes x = q, yi = yiq > 0 for i ∈ {2, 3}, yh = 0 for h = i and y1 = 1 − yi . If the proposer prefers
Ac ce p
to form a unanimous coalition in equilibrium and the parameter values are such that the compromise ideology that would be offered in an interior solution makes both nonproposer parties strictly better-off compared to their status-quo payoffs even with a zero rent share, then the equilibrium rent allocation under abstract review would award the entire rent pie to the proposer. Intuitively, this requires that the non-proposer parties are sufficiently disadvantaged in the status-quo. Hence, more parties would be receiving a positive rent share under the concrete judicial review equilibrium compared to abstract review in this situation. Having established the conditions under which the two types of judicial review affect the equilibrium rent allocations and discussed when abstract review would lead to a 22
Page 23 of 38
greater diffusion of rents in the legislature, the rest of this section investigates further the question of which parties benefit from judicial review. Proposition 1 indicated that observing the direct effect of concrete review on the equilibrium rent allocation requires that the median justice’s acceptance constraint is binding and that settling with the judiciary is the proposer’s preferred option in equilibrium, which is a result that applies
ip t
equally to abstract review. Furthermore, the proposer must be able to manipulate its partner’s rent share from the level that would have prevailed in the absence of a binding
judicial constraint in order to satisfy its acceptance constraint. For when such a direct
cr
effect exists, the following corollary to the previous propositions summarizes the rela-
tionship between a partner party’s ideological proximity to the median justice and its
us
rent share in equilibrium:
xm − q} or x ˆh > max{q, 2ˆ xm − q}, where h ∈ {2, 3} Corollary 3. Suppose x ˆh < min{q, 2ˆ
an
is the proposer party 1’s simple majority coalition partner for a given proposal z. Then, xh − x ˆm )2 if the median justice’s acceptance party h’s rent share yh is non-decreasing in (ˆ
M
constraint is binding.
Corollary 3 is based on the fact that the proposer never strives in equilibrium to make its partner strictly better-off than the status-quo. Consequently, the partner party’s
d
proximity to the proposed ideology that gains the median justice’s approval affects the
te
rent share proposed to it. Specifically, to the extent that the partner’s further ideological alignment with the median justice benefits it, the proposer compensates for this surplus
Ac ce p
payoff by offering a lower rent share to its partner in an interior solution. On the other hand, if the proposed ideology makes the partner party strictly better-off compared to the status-quo even when coupled with a zero rent share, then the optimal rents allocated to the partner party remain constant at zero. Note that more ideological proximity to the median justice always increases party h’s ideological utility when its most-preferred xm − q and when the median ideology x ˆh lies outside the interval formed by q and 2ˆ justice’s acceptance constraint is binding so that the above result is obtained. However, if x ˆh lies inside this interval, then whether greater ideological proximity to the median justice necessarily leads to weakly lower rents depends on the location of the proposer’s ˆm < x ˆh < q < x ˆ1 such that the optimal most preferred ideology x ˆ1 . For example, if x 23
Page 24 of 38
ideology x that would gain the median justice’s approval equals the status-quo, then a marginally greater ideological proximity to the median justice would imply moving away from the proposed ideology x for the partner party and hence lead to weakly higher rents for it in equilibrium. While Corollary 3 predicts how the rent share of the partner party responds to
ip t
ideological proximity with the median justice under both concrete and abstract review, the question of how a party’s welfare is affected as a result remains to be answered.
Proposition 3 established that the equilibria of concrete and abstract review are identical
cr
when the proposer either settles with the judiciary or initiates the final bargaining stage. Hence, the parties’ equilibrium payoffs do not depend on the type of judicial review for
us
parameter values that produce such equilibria. On the other hand, the equilibrium may differ between the two institutions if and only if the proposer forms a unanimous
an
coalition under abstract review. The following result presents the conditions under which the parties’ welfare would depend on the type of judicial review: Proposition 4. In a three-party legislature ruled by simple majority, the parties’ welfare
M
depend on the type of judicial review only if the equilibrium bill under abstract review is challenge-proof. If the status-quo bill s sufficiently favors party i such that ai (z ∗ ) = 0 for i = 1 or ai (zk ) = 0 for i = k, where z ∗ and zk represent the two possible equilibrium
d
outcomes under concrete review, then party i’s equilibrium payoff is strictly higher under
te
abstract review with a challenge-proof bill.
Ac ce p
In addition to establishing that the parties’ welfare differ under the two types of judicial review only when the proposer forms a unanimous coalition in the abstract judicial review equilibrium, Proposition 4 indicates that it is the party that would be left out of the simple majority coalition in the concrete judicial review equilibrium that primarily benefits from abstract review. Specifically, a party votes to reject proposal z ∗ or zk if and only if its status-quo utility is higher than what the bill promises. Since forming a unanimous coalition requires giving each party at least its status-quo payoff, an abstract judicial review equilibrium with a challenge-proof bill always yields a higher utility for the party that would otherwise be kept out of the simple majority coalition with a zero rent share. 24
Page 25 of 38
Note that observing this welfare gain requires the proposer to prefer forming a unanimous coalition under abstract review, which in turn requires, according to Corollary 2, that the three parties are not too ideologically distant from each other. In this environment, it must be the case that the party left out of the simple majority coalition under concrete review commands sufficiently high status-quo rents that partnering with it is not
ip t
optimal for the proposer. Accordingly, being part of the proposer’s unanimous coalition allows this party to weakly increase its equilibrium rent share. This result implies that when the conditions in Corollary 2 are satisfied such that forming a unanimous coalition
cr
is the proposer’s preferred option in equilibrium, abstract review promotes the welfare
of the party that commands high status-quo rents relative to the other non-proposer
us
party, whereas concrete review allows for a channel through which the legislature can redistribute the concentrated status-quo rents among the other two parties.
an
An alternative way of evaluating the relative merits of concrete and abstract review is comparing their welfare gains to those parties that would be kept out of the simple majority coalition with a zero rent share in the absence of judicial review. The following
M
corollary takes up this task:
Corollary 4. Suppose the abstract judicial review equilibrium bill is challenge-proof.
d
Then, judicial review yields a lower equilibrium payoff for the party that would reject the
te
proposer’s bill in the absence of judicial review only if it is concrete. Corollary 4 follows directly from Proposition 4 and its proof is therefore omitted.
Ac ce p
Focusing on a party that votes to reject the proposer’s bill in the absence of judicial review, it indicates that this party’s payoff cannot be lower in the abstract judicial review equilibrium with unanimity. This is because satisfying this party’s acceptance constraint in order to form the unanimous coalition requires awarding sufficiently more surplus to it, which may or may not be in the form of rents. On the other hand, whether this party improves its welfare under concrete review compared to the no-judicial review equilibrium depends on the the median justice’s ideology. Specifically, if the optimal ideology in the concrete judicial review equilibrium determined by the median justice decreases this party’s ideological utility and it still receives a zero rent share in this equilibrium as the non-partner party, then concrete review makes this party worse-off. 25
Page 26 of 38
Therefore, whether judicial review improves the welfare of the party previously left out of the simple majority coalition depends on the type of review, and more importantly, on whether abstract review in fact induces an equilibrium with a unanimous coalition. As re-iterated throughout the analysis, this is the main channel through which the two
8
ip t
institutions may differ in equilibrium.
Conclusion
cr
This paper studied the comparative effects of concrete and abstract judicial review on the political rents allocated among the political parties in a legislature. Consisting of
us
both an ideology and a rent allocation component, a bill that passes in the legislature becomes subject to judicial review (automatically upon legislative approval under con-
an
crete review and following a challenge by an opposition party under abstract review) in which the justices vote solely based on their ideological preferences. The analysis established the conditions under which these two types of judicial review affect the equi-
M
librium rent allocation in the legislature despite the justices not having preferences over it. The analysis applied both to strong-form systems in which judicial rulings are final and to weak-form systems in which the legislature has the power to reconvene following
d
the judiciary’s rejection of its bill. In this environment, this paper compared the two
te
types of judicial review based on their potential for creating a greater diffusion of rents in the legislature and their welfare implications for those parties receiving zero rents in
Ac ce p
the absence of judicial review.
The results of this paper have implications for the design of judicial institutions in new democracies and their reform in more advanced ones. Specifically, in environments in which the size of political rents is especially large and vote-buying is a common legislative practice, it is important to recognize that abstract review may lead to a great diffusion of these rents across the political spectrum whenever the judiciary and the legislature are ideologically distant from each other. In contrast, when the court’s median justice and the legislature are more in ideological agreement, the type of judicial review a new democracy chooses to adopt may not matter as much in terms of the diffusion of rents. Moreover, adopting abstract review in an environment in which there exists 26
Page 27 of 38
ideological hostility between the legislature and the judiciary would mostly benefit the party that commands large rents in the status-quo. There are a number of interesting directions in which this model can be extended. As in Vanberg (1998), one such direction would be to to endogenize the decision to challenge a bill under abstract review and make this a risky decision for the opposition parties,
ip t
such as introducing the possibility of electoral defeats following unsuccessful constitutional challenges. Likewise, the final legislative bargaining stage can be structured such
that the supporters of the initial bill are barred from proposing a new bill following a
cr
judicial rejection. The interactions between the legislature and the judiciary could also be modeled more dynamically, allowing for repeated challenges of bills passed in the
us
legislature. Finally, the judicial review stage can be enriched by endowing the justices with preferences on the various aspects and implications of their decision-making pro-
an
cess. For example, the justices may have an aversion to their rulings being overturned by subsequent legislation or they may directly have preferences on the distribution of rents across the political spectrum. Embedding such aspects of judicial decision-making that
M
have been modeled and tested in the existing literature would be a promising pursuit
Ac ce p
te
d
for future projects.
27
Page 28 of 38
9
APPENDIX
Proof of Proposition 1. First, let |N | = 2 and consider a strong-form system. Given a ˆ j )2 . proposal z = (x, y), justice j votes to accept z if and only if (x − x ˆj )2 ≤ (q − x If the median justice m prefers the proposed ideology x to the status-quo ideology q, the judiciary accepts the proposal z. Thus, proposal z becomes the law if and only if
ip t
ˆm )2 . Taking the judiciary’s optimal behavior as given, the Lagrangian (x − x ˆm )2 ≤ (q − x
cr
the proposer party 1 solves can be written as L = −(x − x ˆ1 )2 + αy1
(3)
us
+λ1 [−(x − x ˆ2 )2 + α(1 − y1 ) − u2 (s)] + λ2 [−(x − x ˆm )2 + (q − x ˆ m )2 ]
an
+μ1 x − μ2 (x − 1) + γ1 y1 − γ2 (y1 − 1).
Consider a solution in which the median justice’s acceptance constraint does not bind
M
so that λ2 = 0. An interior solution to (3) in this case yields x∗ =
x ˆ1 − x ˆ2 2
=α
−1
2
x ˆ1 − x ˆ2 2
2
(4) 2
− (q − x ˆ2 ) +
αy2q
;
(5)
2
− (q − x ˆ2 ) +
αy2q
;
(6)
Ac ce p
y2∗
d
=1−α
−1
te
y1∗
x ˆ1 + x ˆ2 ; 2
where the rent allocation y ∗ = (y1∗ , y2∗ ) is obtained by bringing party 2 to indifference, i.e. letting u2 (x∗ , y ∗ ) = u2 (q, y q ). This solution requires um (x∗ , y ∗ ) ≥ um (q, y q ). For x1 , (1, 0)) ≥ u2 (q, y q ) and corner solutions, first suppose u2 (x∗ , (1, 0)) ≥ u2 (q, y q ). If u2 (ˆ ˆ1 , then the optimal proposal is given by x = x ˆ1 and y = (1, 0). λ2 = 0 when x = x x1 , (1, 0)) < u2 (q, y q ), then the optimal proposal is implicitly If, on the other hand, u2 (ˆ defined by u2 (x, (1, 0)) = u2 (q, y q ), which yields an ideology x between x∗ and x ˆ1 and a rent allocation y = (1, 0). Second, suppose u2 (q, y q ) > u2 (x∗ , (0, 1)). Now, the optimal proposal is implicitly defined by setting u2 (x, (0, 1)) = u2 (q, y q ), which yields an ideology ˆ2 and a rent allocation y = (0, 1). Each of these possible corner x between x∗ and x 28
Page 29 of 38
solutions for proposal z requires the median justice’s acceptance. Now consider a solution in which the median justice’s acceptance constraint binds so that λ2 > 0. In this case, the status-quo pins down the optimal proposal such that the ˆm )2 and depends on the relative positions optimal ideology x satisfies (x − x ˆm )2 = (q − x of the most-preferred ideologies and the status-quo. For example, if x ˆ1 < x ˆ2 < x ˆm < q, xm − q, (0, 1)) > u2 (q, y q ) > u2 (2ˆ xm − q, (1, 0)), then x = 2ˆ xm − q. In this case, if u2 (2ˆ
ˆ2 )2 − (q − x ˆ2 )2 + αy2q ; y1 = 1 − α−1 (2ˆ xm − q − x
cr
which yields
ip t
xm − q, y) = u2 (q, y q ), then the optimal rent allocation y is obtained by solving u2 (2ˆ
(8)
us
ˆ2 )2 − (q − x ˆ2 )2 + αy2q . xm − q − x y2 = α−1 (2ˆ
(7)
ˆ2 < x ˆ1 , then x = q. If, in addition, u2 (q, (0, 1)) > u2 (q, y q ) > Alternatively, if x ˆm < q < x u2 (q, (1, 0)), i.e. if y2q ∈ (0, 1), then the optimal rent allocation is given by y = y q . In
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other words, the optimal proposal z is the status-quo bill s. Note that these possible solutions represent cases in which party 2 can be brought to indifference with a positive the rent allocation becomes y = (1, 0).
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rent share. In contrast, for example, if u2 (x, (1, 0)) ≥ u2 (q, y q ) for the optimal x, then Overall, the analysis implies that strong-form concrete review affects the equilibrium
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rent allocation when the median justice’s acceptance constraint is binding and when the
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parameters are such that party 2’s rent share can be manipulated from the level that would have prevailed if the median justice’s constraint did not bind to gain its accep-
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tance. Note that this result stays fundamentally the same when |N | = 3 in a strong-form system: After substituting the party 2 subscript with a general subscript for party 1’s coalition partner and noting that the non-partner party never receives a positive rent share in equilibrium, the above analysis for two-party legislatures also characterizes the equilibrium in three-party legislatures. Second, let |N | = 2 and consider a weak-form system in which party k ∈ {1, 2} denotes the randomly selected proposer in the final bargaining stage. The equilibrium of this stage is identical to the strong-form system characterization above for when the median justice’s acceptance constraint does not bind and thus is not repeated here. Given the parties’ optimal final bargaining strategies and an initial proposal z with ideology x,
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justice j votes to accept z if and only if (x − x ˆj )2 ≤ p1 (x1 − x ˆj )2 + p2 (x2 − x ˆj )2 , where xk denotes the optimal ideology that would be proposed by party k = 1, 2 during the final bargaining stage. Thus, if the justice j with the median value of uj (z) − 2i=1 pi uj (zi ) prefers the proposal z, then z becomes the law. Party 1 faces two options during the initial bargaining stage: To make a proposal
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that would be accepted by both party 2 and the median justice, or to make a proposal that party 2 would accept but the median justice would reject, thereby initiating the final bargaining stage. The characterization of the equilibrium bill for the former option
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follows the analysis for strong-form systems, except for the fact that the median justice’s ˆm )2 + p2 (x2 − x ˆm )2 . For the acceptance constraint is now given by (x − x ˆm )2 ≤ p1 (x1 − x
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latter option, any proposal that fails to satisfy the median justice’s acceptance constraint is optimal as long as party 2’s acceptance constraint 2i=1 pi u2 (zi ) ≥ u2 (s) is satisfied.
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In this case, the equilibrium outcome is determined by the final bargaining stage. Consequently, weak-form concrete review has an effect on the equilibrium rent allocation under the same conditions as strong-form systems if party 1 prefers the first
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option outlined in the above paragraph. However, if the second option is preferred, the effect of judicial review on the equilibrium rent allocation becomes indirect and materializes through inducing party 1 to bypass it. As before, considering a legislature with
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|N | = 3 does not change these fundamental results. The main difference it introduces to
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the analysis is a technical one that modifies the median justice’s expected utility from
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the final bargaining stage. This completes the proof of Proposition 1. Proof of Corollary 1. In the concrete judicial review equilibrium of a weak-form system, party 1 prefers to gain the median justice’s acceptance over bypassing the judiciary if and only if its utility from the optimal bill that would be accepted both in the legislature and by the median justice is at least as great as its expected utility from the final bargaining stage. Formally, letting z ∗ denote the optimal bill under the former option, this condition |N | requires that u1 (z ∗ ) ≥ i=1 pi u1 (zi ), which can be written as u1 (z ∗ ) − u1 (z2 ) ≥ p1 u1 (z1 ) − u1 (z2 )
(9)
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for legislatures of |N | = 2; and as u1 (z ∗ ) − (p1 + p2 )u1 (z2 ) − (p1 + p3 )u1 (z3 ) ≥ p1 u1 (z1 ) − u1 (z2 ) − u1 (z3 )
(10)
for legislatures of |N | = 3. When the median justice’s acceptance constraint is not binding, we have z ∗ = z1 so that both (9) and (10) automatically hold for all parameter
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values. On the other hand, if this constraint is binding, first note that the conditions require p1 to be sufficiently small in order to hold. Second, since u1 (z ∗ ) ≤ u1 (z1 ) when
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the constraint is binding, the conditions require u1 (z ∗ ) and u1 (z1 ) to be sufficiently close,
which in turn requires (ˆ x1 − x ˆm )2 to be sufficiently small. This completes the proof of
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Corollary 1.
Proof of Proposition 2. Consider a strong-form system and note that the equilibrium of
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the judicial review stage is identical to its corresponding characterization in the proof of Proposition 1. Taking the judiciary’s optimal behavior as given, party 1 chooses one of the following two options in equilibrium: Solve the Lagrangian in (3), except
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for replacing party 2’s acceptance constraint with his preferred partner’s, in order to settle with the judiciary; or secure unanimity in the legislature, thereby making the bill challenge-proof. The characterization of the optimal bill z ∗ with which to pursue the first
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alternative follows the analysis in the proof of Proposition 1 and is therefore not repeated
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here. As in Definition 1, let z¯ denote the optimal bill with which to attain unanimity z ), then party 1 behaves identically in the equilibrium in the legislature. If u1 (z ∗ ) ≥ u1 (¯
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of concrete and abstract review so that their equilibrium effects are the same. In the opposite scenario, the fact that party 1 forms a challenge-proof coalition by potentially allocating positive rents to a party whose support is not required to pass the bill in the legislature constitutes abstract judicial review’s indirect effect, which again requires a binding judicial constraint. Except for the fact that party 1 can now secure unanimity in addition to settling with the judiciary or bypassing it, the weak-form abstract review analysis also follows the proof of Proposition 1. When the unanimity option is preferred in a weak-form system, the effect of abstract review on equilibrium would again be indirect as under a strong-form system.
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Proof of Corollary 2. The proof follows the analysis in Corollary 1. Party 1 prefers to form a unanimous coalition over gaining the median justice’s acceptance in a strongform system and over either gaining the median justice’s acceptance or initiating the final bargaining stage in a weak-form system if and only if its utility from the optimal bill that would induce unanimity in the legislature is at least as great as its utility from
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either of the available alternatives. Specifically, party 1 forms a unanimous coalition in equilibrium instead of settling with the judiciary in a strong-form system if and only if z ) ≥ u1 (z ∗ ), which requires (ˆ x1 −ˆ xm )2 to be sufficiently large and the parties to be ideu1 (¯
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ologically close. In the equilibrium of a weak-form system, forming a unanimous coalition |N | is preferred to initiating the final bargaining stage if and only if u1 (¯ z ) ≥ i=1 pi u1 (zi ),
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which can be written as
(11)
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z ) − (p1 + p2 )u1 (z2 ) − (p1 + p3 )u1 (z3 ) u1 (¯ ≥ p1 . u1 (z1 ) − u1 (z2 ) − u1 (z3 )
When the acceptance constraint of the party who would not belong to the simple majority coalition is not binding even when awarded a zero rent share, then z¯ = z1 so that (11)
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holds automatically. However, when this constraint is binding, (11) requires a sufficiently z ) and u1 (z1 ) in order to hold. The latter in turn low p1 and a sufficiently close u1 (¯
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requires sufficient ideological proximity between the parties in the legislature.
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Proof of Proposition 3. Suppose that the equilibrium bill under abstract review awards a positive rent share to more parties than under concrete review. Since the equilibria
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under the two types of review are identical if the proposer prefers to settle with the judiciary or to initiate the final bargaining stage, the equilibrium bill under abstract review has to be unanimously agreed-upon. To see that the converse is not necessarily true, consider an interior concrete judicial review equilibrium in which the judicial constraint is binding with y1 > 0 and yi > 0 for exactly one party i = 1. In an interior abstract judicial review equilibrium with a challenge-proof bill, the proposer would offer the compromise ideology x∗∗ =
x ˆ1 +ˆ x2 +ˆ x3 . 3
If the parameter values are such that ui (x∗∗ , (y1 , yh = 0, yi )) > ui (q, y q ) for h = i and h ∈ {2, 3}, then at least as many parties receive a positive rent share in the concrete judicial review equilibrium as under abstract review. 32
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Proof of Corollary 3. Under the Corollary’s assumption, x ˆh for h ∈ {2, 3} lies strictly outside the interval formed by the ideologies q and 2ˆ xm − q within which the optimal proposal’s ideology lies. For all parameter values such that judicial review is not the last stage reached on the equilibrium path, partner party’s rent share yh remains unaffected by (ˆ xh − x ˆm )2 . However, for all other parameters, uh (z) is decreasing in (ˆ xh − x ˆ m )2 if the median justice’s acceptance constraint is binding. Denoting by x the optimal
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ˆm )2 , if u2 (x, (0, 1)) > u2 (q, y q ) > u2 (x, (1, 0)), ideology for which (x − x ˆm )2 = (q − x
ˆm )2 implies that yh must increase accordingly in then a marginal increase in (ˆ xh − x
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order to maintain party h’s indifference such that uh (z) = uh (s). On the other hand, if
xh − x ˆm )2 implies that yh remains u2 (x, (1, 0)) ≥ u2 (q, y q ), then a marginal increase in (ˆ
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zero as long as this inequality is maintained. To see why the assumption is needed xm , q) and x ˆ1 > q such that for this result to hold, suppose, for instance, that x ˆh ∈ (ˆ x ˆ1 +ˆ xh 2
> q. Then, the optimal x equals q and a marginal increase in (ˆ xh − x ˆm )2 implies
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that uh (z) increases, indicating that yh must decrease in an interior solution.
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Proof of Proposition 4. The first statement in the proposition follows directly from Proposition 3: Since the equilibria under concrete and abstract review are identical if the proposer settles with the judiciary or initiates the final bargaining stage on the equilib-
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rium path, then the equilibrium bill must be challenge-proof under abstract review if the equilibrium outcomes are different. However, a challenge-proof bill may be identical to
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the equilibrium bill under concrete review. For example, suppose the bill z ∗ that gains party 2’s and the judiciary’s approval in the concrete judicial review equilibrium is such
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that y2 > 0 and y3 = 0. If u3 (z ∗ ) ≥ u3 (s), then this bill is challenge-proof under abstract review as it also has party 3’s approval. Therefore, the converse of the first statement is not necessarily true.
For the second part of the proposition, first consider a strong-form concrete judicial review equilibrium in which the bill z ∗ = (x, (y1 , y2 , 0)) along with a sufficiently high value for u3 (s) yield u3 (z ∗ ) < u3 (s), i.e. a3 (z ∗ ) = 0, where the choice of party 3 as the non-partner party is without loss of generality. Since party 3’s acceptance constraint u3 (z) ≥ u3 (s) must be satisfied in an abstract judicial review equilibrium with a challenge-proof bill, its utility must necessarily increase. Second, consider a weak-form
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concrete judicial review equilibrium in which the final bargaining stage is reached on the equilibrium path and the equilibrium outcome bill zk = (x , (y1 , y2 , 0)), where k = 3, along with a sufficiently high value for u3 (s) yield the equilibrium acceptance strategy a3 (zk ) = 0. By the same argument that u3 (z) ≥ u3 (s) must hold in an abstract judicial review equilibrium with a challenge-proof bill, party 3’s utility must necessarily be
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an
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higher compared to the concrete judicial review equilibrium.
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References [1] Banks, J. and J. Duggan, (2006), “A General Bargaining Model of Legislative Policy-Making,” Quarterly Journal of Political Science, vol. 1(1), 49-85.
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[2] Baron, D. and J. Ferejohn, (1989), “Bargaining in Legislatures,” American Political Science Review, vol. 83(4), 1181-1206. [3] Battaglini, M. and S. Coate, (2007), “Inefficiency in Legislative Policymaking: A Dynamic Analysis,” American Economic Review, vol. 97(1), 118-49.
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[4] Bergara, M., B. Richman and P. Spiller, (2003), “Modeling Supreme Court Strategic Decision Making: The Congressional Constraint,” Legislative Studies Quarterly, vol. 28(2), 247-80.
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[5] Besley, T., E. Ilzetzki and T. Persson, (2013), “Weak States and Steady States: The Dynamics of Fiscal Capacity,” American Economic Journal: Macroeconomics, vol. 5(4), 205-35. [6] Bowen, R., Y. Chen and H. Eraslan, (2014), “Mandatory versus Discretionary Spending: The Status Quo Effect,” American Economic Review, vol. 104(10), 294174.
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[7] Caldeira, G., J. Wright and C. Zorn, (1999) “Sophisticated Voting and GateKeeping in the Supreme Court,” Journal of Law, Economics, and Organization, vol. 15(3), 549-72.
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[8] Carrubba, C., M. Gabel and C. Hankla, (2008), “Judicial Behavior under Political Constraints: Evidence from the European Court of Justice,” American Political Science Review, vol. 102(4), 435-52.
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[9] Clark, T., (2009), “The Separation of Powers, Court Curbing, and Judicial Legitimacy,” American Journal of Political Science, vol. 53(4), 971-89. [10] Corkin, N., Europeanization of Judicial Review, Law, Courts and Politics, Routledge, 1st Edition, 2014. [11] Diermeier, D. and T. Feddersen, (1998), “Cohesion in Legislatures and the Vote of Confidence Procedure,” American Political Science Review, vol. 92(3), 611-21. [12] Ferejohn, J., F. Rosenbluth and C. Shipan, “Comparative Judicial Politics” in: The Oxford Handbook of Comparative Politics, Oxford: Oxford University Press, 727-51, 2009. [13] Finck, D. E., (1997), “Judicial Review: The United States Supreme Court Versus the German Constitutional Court,” Boston College International and Comparative Law Review, vol. 20(1), 123-57. 35
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[14] Garoupa, N. and V. Grembi, (2015), “Judicial Review and Political Partisanship: Moving from Consensual to Majoritarian Democracy,” International Review of Law and Economics, vol. 43, 32-45. [15] Gely, R. and P. Spiller, (1990), “A Rational Choice Theory of Supreme Court Statutory Decisions with Applications to the State Farm and Grove City Cases,” Journal of Law, Economics, and Organization, vol. 6(2), 263-300.
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[16] Gely, R. and P. Spiller, (1992), “The Political Economy of Supreme Court Constitutional Decisions: The Case of Roosevelt’s Court-Packing Plan,” International Review of Law and Economics, vol. 12, 45-67.
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[17] Jackson, M. O. and B. Moselle, (2002), “Coalition and Party Formation in a Legislative Voting Game,” Journal of Economic Theory, vol. 103(1), 49-87.
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[18] Karakas, L.D., (2016), “Legislative Bargaining under a Referendum Threat,” Working Paper.
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[19] Kommers, D., (1994), “Constitutional Politics in Germany,” Comparative Political Studies, vol. 26, 470-91.
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[20] Langer, L., (2003), “Strategic Considerations and Judicial Review: The Case of Workers’ Compensation Laws in the American States,” Public Choice, vol. 116, 55-78. [21] Liptak, A. (2016, January 11). Supreme Court Poised to Deal Unions a Major Setback. The New York Times.
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[22] Liptak, A. (2016, March 29). Victory for Unions as Supreme Court, Scalia Gone, Ties 4-4. The New York Times. [23] Liptak, A. and Davenport, C. (2015, June 29). Supreme Court Blocks Obama’s Limits on Power Plants. The New York Times.
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[24] Marks, B., (2015), “A Model of Judicial Influence on Congressional Policy Making: Grove City v. Bell,” Journal of Law, Economics, and Organization, vol. 31(4), 84375. [25] Politi, J. (2017, January 26). What are the consequences of Italy’s constitutional court ruling? The Financial Times. [26] Rogers, J., (2001), “Information and Judicial Review,” American Journal of Political Science, vol. 45(1), 84-99. [27] Segal, J. and A. Cover, (1989), “Ideological Values and the Votes of U.S. Supreme Court Justices,” American Political Science Review, vol. 83(2), 557-65. [28] Segal, J., (1997), “Separation-of-Powers Games in the Positive Theory of Congress and Courts,” American Political Science Review, vol. 91(1), 28-44. 36
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[29] Segal, J., C. Westerland and S. Lindquist, (2011), “Congress, the Supreme Court, and Judicial Review: Testing a Constitutional Separation of Powers Model,” American Journal of Political Science, vol. 55(1), 89-104. [30] Shaheen, K. (2017, January 19). Turkey’s parliament set to approve sweeping new powers for president. The Guardian.
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[31] Songer, D. and S. Lindquist, (1996), “Not the Whole Story: The Impact of Justices’ Values on Supreme Court Decision Making,” American Journal of Political Science, vol. 40(4), 1049-63.
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[32] Tushnet, M., (2003), “Alternative Forms of Judicial Review,” Michigan Law Review, vol. 101(8), 2781-802.
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[33] Tushnet, M., (2006), “Weak-Form Judicial Review and “Core” Civil Liberties,” Harvard Civil Rights-Civil Liberties Law Review, vol. 41, 1-22. [34] Vanberg, G., (1998), “Abstract Judicial Review, Legislative Bargaining, and Policy Compromise,” Journal of Theoretical Politics, vol. 10(3), 299-326.
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[35] Vanberg, G., (2001), “Legislative-Judicial Relations: A Game-Theoretic Approach to Constitutional Review,” American Journal of Political Science, vol. 45(2), 34661.
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[36] Winter, E. (1996), “Voting and Vetoing,” American Political Science Review, vol. 90(4), 813-23.
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S0144-8188(17)30034-0 http://dx.doi.org/doi:10.1016/j.irle.2017.08.004 IRL 5776
To appear in:
International Review of Law and Economics
Received date: Revised date: Accepted date:
26-10-2016 18-5-2017 25-8-2017
Please cite this article as: Leyla D. Karakas, Political Rents under Alternative Forms of Judicial Review, (2017), http://dx.doi.org/10.1016/j.irle.2017.08.004 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.
• The allocation of political rents in bills subject to judicial review is studied. • Concrete judicial review may lead to less rent diffusion among the political parties. • Abstract judicial review may favor the parties that command large status-quo rents.
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• These results inform the debates on the effectiveness and consequences of review.
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Political Rents under Alternative Forms of Judicial Review
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Leyla D. Karakas∗
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Abstract
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August 29, 2017
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Opponents of bills that are approved in the legislature frequently pursue subsequent judicial challenges based on constitutional grounds in order to overturn them. Such challenges may occur through a specific legal case as in the U.S. (concrete judicial review) or through the petition of an opposition party at the constitutional court as in many parliamentary democracies (abstract judicial review). While the decision-making process of high court justices has been widely studied, the effect of anticipated judicial review on the composition of bills introduced in the legislature has received limited attention. This paper theoretically analyzes how the institutions of concrete and abstract judicial review influence the political rents associated with a bill when the justices decide solely based on the bill’s ideological component. The results indicate that abstract review may lead in equilibrium to a greater diffusion of rents across the political spectrum through its anticipatory effect, while the rents under concrete review are more concentrated among the legislative winning coalition. When this is the case, abstract review improves the equilibrium payoff of the party that would be left out of the legislative winning coalition under concrete review and favors those parties that command large rents in the status-quo.
Keywords : Judicial Review, Legislative Bargaining, Supreme Court. JEL Classification : C78, D72, D78, K40. ∗ Department of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University, Syracuse, NY 13244. Email: [email protected]. I am grateful to the editor Scott Baker and an anonymous referee whose suggestions have been instrumental. I would also like to thank Kristy Buzard, Hugo Jales, Michelle Liu, Piyusha Mutreja, Abdul Shifa and the seminar participants at the 2017 Meeting of the European Public Choice Society for their thoughtful comments.
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1
Introduction
Judicial challenges to the constitutionality of a bill frequently follow its acceptance in the legislature. In the U.S., judicial review is initiated by a specific legal case and hence is termed concrete review. For example, in National Federation of Independent Business v. Sebelius, the U.S. Supreme Court (SC) upheld the central provisions of the Affordable
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Care Act that President Obama had signed into law in 2010. In contrast, the consti-
tutional courts (CC) of parliamentary democracies perform judicial review once the bill
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has been referred to them by, for example, a political institution, a civil society organization or an opposition party. Since the review is conducted in the absence of a specific
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legal case, it is called abstract review. For example, Italy’s CC ruled in January 2017 against a part of the country’s 2015 electoral law that had introduced run-off elections.1 While each bill in these examples carries an ideology that justices care about, it also
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implies a certain distribution of economic benefits among the interested parties. This paper compares the effects of concrete and abstract judicial review on the allocation of
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these economic benefits across the legislature.
Previous studies of higher court justices’ rulings have found evidence that both ideological leanings and strategic considerations affect how justices decide on a case.2 In
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light of this evidence, the question of how a looming judicial review process impacts
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the composition of the bills passed in the legislature has received some attention.3 In this literature, a bill is frequently modeled as unidimensional, consisting solely of an
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ideology. However, in reality, a bill approved in the legislature following complex negotiations has implications for the allocation of its associated economic benefits across the political spectrum. Although these political rents may be separate from ideology, they are nonetheless bundled together with it in the same bill. Thus, when justices vote to uphold or reject a bill, they inadvertently also vote on one of its components over 1 There are exceptions to this rule in parliamentary democracies. For example, France allows its Constitutional Council to perform a priori review, i.e. to rule on the constitutionality of a bill before it is voted in the parliament. 2 Such strategic considerations include, among others, aversion to being overturned by further legislative action and protecting the prestige and legitimacy of their court. For an overview of the literature, see Segal and Cover (1989), Gely and Spiller (1990) and (1992), Songer and Lindquist (1996), Segal (1997), Rogers (2001), Bergara, Richman and Spiller (2003), Langer (2003), Clark (2009), Segal, Westerland and Lindquist (2011). 3 Vanberg (1998) and Marks (2015) are two prominent examples.
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which they do not have fundamental preferences. Understanding such multi-dimensional implications of judicial review is important for informing the debates on the comparative effects of abstract and concrete review on policy along with their welfare consequences for the interested parties. For instance, in January 2016, the SC heard arguments in the case of Friedrichs v. California Teachers Association, in which a group of public employees challenged Cali-
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fornia’s “agency fee” laws that require them to pay union fees for collective bargaining.4
The justices’ comments during the session suggested that the case would be determined
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based on the court’s ideological division. However, while the power of public unions has always been an ideological issue, the decision would also have significant economic reper-
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cussions for various stakeholders, including their political representatives. In the end, the decision landed in favor of the public unions after a vote predictably split based on
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ideology.5 Similarly, the SC ruled in the case of Michigan v. Environmental Protection Agency (EPA) in 2015 that the EPA had overstepped its authority in regulating coal plants. While the decision reflected the court’s ideological divide, the plaintiffs’ main
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argument in the case was the absence of a careful cost-benefit analysis by the EPA and the fact that these regulations would impose annual costs of $9.6 billion on the coal industry. The ruling implies that the EPA has to reorganize its regulatory scheme.6
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Motivated by such cases that suggest the policy effects of judicial review are not only
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ideological, this paper studies the effects of concrete and abstract review on the political rents associated with a bill by focusing on an environment in which the justices rule
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solely based on their ideological preferences. More specifically, do the political parties that are ideologically aligned with the court receive a more favorable treatment in terms of rents? Which parties benefit from judicial review and which ones are hurt by it? How do the answers to these questions depend on whether the review is concrete or abstract? To address these questions, I build a model of strategic interactions between a legislature and a court with the authority to rule on the constitutionality of a bill following its 4
Liptak, A. (2016, January 11). Supreme Court Poised to Deal Unions a Major Setback. The New York Times. 5 Liptak, A. (2016, March 29). Victory for Unions as Supreme Court, Scalia Gone, Ties 4-4. The New York Times. 6 Liptak, A. and Davenport, C. (2015, June 29). Supreme Court Blocks Obama’s Limits on Power Plants. The New York Times.
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initial approval in the legislature. I consider both concrete and abstract review in order to compare the effects on political rents of alternative institutions. In the first stage, political parties bargain over a bill that consists of an ideology and a rent allocation across the legislature. If the bill is accepted, a judicial challenge against it is automatically initiated under concrete review. In contrast, under abstract review, a judicial challenge
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requires that at least one party has voted to reject the bill in the legislature. Thus, bills passed with unanimity are immune from judicial challenges under this institution. In
the second stage, justices rule on the constitutionality of the bill based on their ideolog-
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ical preferences. Under both institutions, the bill becomes the law if the court votes to uphold it. However, if the justices vote to reject, whether this means the end for this bill
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depends on the ability of the legislature to override the judiciary’s decision. Specifically, I study both weak-form systems in which the legislature can bypass the judiciary by considering another bill and strong-form systems in which the judiciary has the final
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word.7 Under the former, if the justices vote to reject, a final stage is reached in which the legislature reconvenes, reflecting the legislative branch’s ability to overturn judicial
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rulings. In contrast, the game ends with the judiciary’s decision in the latter. The main result of the paper indicates that even though the justices do not have fundamental preferences over the allocation of rents, the threat of their review affects this
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allocation under certain conditions relative to the equilibrium that would be observed
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in its absence. This effect may materialize directly through the judiciary’s acceptance constraint in the proposer party’s problem, in which case the rents awarded to the coali-
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tion partner weakly decrease in its ideological proximity to the court’s median justice under certain parameter restrictions. Alternatively, in a weak-form system in which the legislature can reconvene following a negative ruling, the threat of judicial review may prompt the proposer to bypass the judiciary and start a new round of bargaining with a potentially new proposer and a new winning coalition. For abstract review, a similar indirect channel exists in which this threat may prompt the proposer to secure a challenge-proof unanimous coalition. Establishing the effects of judicial review on both the ideological and the rent allocation bargains struck in the legislature sheds light on some recent episodes such as 7
The institutional details of this dichotomy will be elaborated on in the following sections.
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the aforementioned decision by Italy’s CC or the constitutional changes in Turkey that replaced the country’s parliamentary system with a presidential one. In the former, the CC ruled against the run-off system while finding other aspects of the law that introduced some majoritarian elements to the country’s proportional representation electoral system constitutional. These “majoritarian corrections” were weaker compared to those
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the CC had previously ruled against and represented a compromise by Prime Minister Renzi to gain the approval of both the CC and the smaller parties that made up its
governing coalition. This ideological bargain coupled with political rents in the form of
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future membership in the governing coalition secured the law’s passage in the legislature and approval in the CC.8 In contrast, the latter episode represents an example of
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ideological alignment between the CC and the majority party in the parliament. Unable to ensure passage in the legislature with only votes from it own party, Turkey’s ruling
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party offered political rents in the form of future posts in the presidential administration to one of the opposition parties that had previously declared its ideological opposition to the law, overcoming the legislative hurdle.9,10
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Comparisons of concrete and abstract review indicate that their effects on political rents are identical, relative to the equilibria that would be observed in their respective absences, whenever the equilibrium bill has the judiciary’s approval or the final bar-
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gaining stage is reached on the equilibrium path. On the other hand, there exist more
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parties with a positive rent share under abstract review than there would be under concrete review only if the ideological difference between the court’s median justice and the
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proposer party is sufficiently great and that between the political parties is sufficiently small such that the equilibrium bill is unanimously agreed-upon in the legislature. Thus, under certain conditions, abstract review leads to an equilibrium with a greater diffusion 8
Politi, J. (2017, January 26). What are the consequences of Italy’s constitutional court ruling? The Financial Times. 9 Shaheen, K. (2017, January 19). Turkey’s parliament set to approve sweeping new powers for president. The Guardian. 10 The framework in this paper also offers insights into questions such as whether there would need to be protections for the insurance industry in the Affordable Care Act if it had contained a public option that would likely be found constitutional by the SC. Widespread reports at the time indicated that the more centrist Democrats in Congress opposed a public option during the negotiations based on a combination of ideological aversion and pressure from insurance companies that stood to lose economically from it. Had the sponsors of the bill insisted on the public option instead of including the individual mandate in its place, the results of this paper suggest that the opponents would have to be compensated in political rents to ensure the bill’s passage.
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of rents across the political parties, whereas the rents are more concentrated among the winning coalition under concrete review. Overall, these results imply that analyses of policy consequences of judicial review should focus not only on a bill’s ideology but also on its associated allocation of economic benefits across the legislature. This is because the multi-dimensionality of bills
ip t
implies that the ideological restrictions the judiciary imposes on the bargains struck in the legislature may also affect the political rents that accrue to the parties as part of the legislative process. That judicial review also impacts the allocation of political rents
cr
in the legislature complements the main findings in the literature, in particular Vanberg (1998), that establish the effect of abstract review on fostering ideological compromise
us
between the political parties.11 Specifically, the results here emphasize the important role rent payments may play in addition to ideological compromise in securing a bill’s
an
approval or in bypassing the judiciary.
The insights from this paper regarding the channels through which judicial review impacts legislative bargains can also inform the debates on the relative effectiveness of
M
concrete and abstract review on policy. While the results indicate that the effects of the two institutions on the bills passed in the legislature are identical whenever judicial review occurs in equilibrium, they also establish an indirect, or anticipatory, channel
d
through which abstract review can impact policy. Specifically, a proposer party’s ability
te
to prevent judicial review by forming a unanimous coalition in the legislature under abstract review implies that the effects of the judiciary may work through its anticipatory
Ac ce p
effects rather than the more direct and observable channels. This paper highlights the importance of taking such indirect effects into account for both empirical and qualitative analyses of the comparative effects of the two judicial review institutions. Finally, the results here suggest that any evaluation of the welfare consequences of judicial review must also take rent payments into account as an additional tool of legislative bargaining. Specifically, the results show that the party that would be left out of the winning coalition with a zero rent share under concrete review benefits from abstract review when the equilibrium features a unanimous coalition. The analysis also indicates 11 The relationship of this paper to Vanberg (1998) and other closely-related studies will be discussed in more detail in the following section.
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that this party commands relatively large status-quo rents. Furthermore, while abstract review would unambiguously benefit such a party relative to its equilibrium payoff in the absence of judicial review, concrete review may make it worse-off if it has sufficient ideological distance from the court’s median justice. Together, these findings on the welfare consequences of concrete and abstract review imply that the type of judicial review has
ip t
distributional consequences within the legislature. Along with the potentially greater diffusion of rents this paper predicts would be observed under abstract review compared
to the more concentrated rents under concrete review, they can inform the debates on
cr
the relative merits of the two institutions.
The rest of the paper is organized as follows: The following section discusses the
us
literature. Section 3 gives an overview of the institutional details for judicial review that clarifies how these details map to the paper’s modeling choices. Section 4 introduces
an
the model and the equilibrium concept. Sections 5 and 6 respectively characterize the equilibrium under concrete and abstract judicial review. Section 7 compares these two
2
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institutions based on their policy and welfare consequences. Section 8 concludes.
Related Literature
d
There exists a large literature on decision-making at higher courts that focuses on the
te
ideological and strategic motivations of the justices. These studies have found strong evidence for the co-existence of ideological and strategic judicial decision-making, as
Ac ce p
documented in Bergara, Richman and Spiller (2003) for case rulings and in Caldeira, Wright and Zorn (1999) for agenda-setting.12 Starting with the seminal works of Gely and Spiller (1990) and Marks (2015), numerous studies have contributed to our understanding of SC decision-making within the constraints of various institutions. For instance, Rogers (2001) and Vanberg (2001) model the interaction between the SC and the Congress using an incomplete information framework with regards to judicial preferences. Clark (2009) shows that the justices’ preference for preserving their institutional legitimacy have led them to issue 12
Some studies in this literature include Segal and Cover (1989), Gely and Spiller (1992), Songer and Lindquist (1996), Segal (1997), Langer (2003), Carrubba, Gabel and Hankla (2008), Segal, Westerland and Lindquist (2011) and Garoupa and Grembi (2015).
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restrained rulings during times of public discontent with the SC. As briefly discussed in the Introduction, these studies treat the legislative branch as a unified actor and do not consider the potential impact of judicial review on the content of the agreed-upon bills. This paper departs from the existing literature by studying the implications of the justices’ ideological decision-making on legislative dynamics. In this regard, the two
ip t
closely-related studies to this paper are Winter (1996) and Vanberg (1998). Winter (1996) analyzes a non-cooperative bargaining game in which some players
are endowed with veto power and shows that non-veto players receive a zero payoff in
cr
equilibrium. As the final arbitrator on legislation in strong-form systems, the median justice of the court can be interpreted as a veto player who always receives at least her
us
status-quo ideological payoff. However, this paper also models weak-form systems in which the veto power of the judiciary is diminished, thereby allowing for an analysis of
an
the various roles the judiciary might play under different political systems. In addition, in a departure from Winter (1996), the presence of ideology along with rent payments as a bargaining tool allows for the possibility that non-proposer parties may become part of
M
the legislative winning coalition despite receiving zero rent shares in equilibrium. This is due to the fact that a party’s gain is necessarily another party’s loss in the Winter (1996) setting, whereas this paper shows that mutually beneficial gains are possible, for
d
instance if the parties are ideologically close and dislike the status-quo.
te
Vanberg (1998) studies the effect of abstract review on the content of the proposals introduced in the legislature. Within a legislative bargaining model in which the ini-
Ac ce p
tiators of judicial review may be punished in a subsequent election if the bill is found constitutional, the author characterizes the equilibrium proposals with respect to the policy polarization between the two parties and the CC. Although this paper focuses on a component of a bill over which the justices do not have fundamental preferences and thus is different from Vanberg (1998) in its question, it is still closely related to it in its modeling structure. Corroborating the central finding of Vanberg (1998), this paper also demonstrates that judicial review encourages ideological compromise in the legislature, with this effect being more pronounced under abstract review due to the power it grants the political parties to pass challenge-proof bills with unanimity. However, the bundling of ideology and rents modeled in this paper yields richer insights than
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the unidimensional setting of Vanberg (1998). While the right ideological compromise is both necessary and sufficient in Vanberg (1998) in order to pass legislation, it may not be sufficient here as the smaller parties ask for additional rent compensation in order to attain their status-quo payoffs. This setting allows for characterizing the conditions under which rent compensation complements ideological compromise in equilibrium and
ip t
offers insights into episodes such as the previously discussed ruling of Italy’s CC. There also exists extensive legal scholarship on the comparative merits of concrete and abstract review. Studies have evaluated these two institutions based on, for ex-
cr
ample, the democratic legitimacy of ruling in the absence of a specific legal case, the extent of legal certainty they afford or the ability they give to the justices to grant or
us
deny review.13 While it is beyond the scope of this paper to comment on these debates, insights can be gained for the branch of this literature that focuses on the policy and
an
welfare consequences of judicial review. For instance, an implication of the results here is that the anticipatory effects of abstract review, manifested in unanimous coalitions formed in response to a hostile judiciary, exist but are difficult to observe. Therefore, it
M
is important for comparative studies of the policy effects of judicial review to consider any potential unobserved effects.
Finally, this paper aims to contribute to a political economy literature on the polit-
d
ical allocation of public resources, prominent examples of which include Battaglini and
te
Coate (2007), Besley, Ilzetzki and Persson (2013) and Bowen, Chen and Eraslan (2014).14 Building on the seminal work of Baron and Ferejohn (1989), the present model is related
Ac ce p
to Jackson and Moselle (2002) in considering two-dimensional bills consisting of an ideology and a distributive component. It also draws upon results from bargaining theory such as Banks and Duggan (2006). 13
For example, see Kommers (1994) and Finck (1997). Other related papers in this literature that focus on institutions constraining legislative policymaking include Diermeier and Feddersen (1998) that studies the vote-of-confidence procedure and Karakas (2016) that analyzes the constitutionally-triggered referendum process. 14
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3
An Overview of Concrete vs. Abstract Judicial Review
Judicial review constitutes an integral part of a country’s system of checks and balances. It gives courts the authority to rule on whether bills passed in the legislature comply with the country’s constitution. The judicial entity with this authority may be the CC as in many parliamentary systems or the country’s highest appeals court such as the SC.
ip t
In most common-law system such as the U.S., judicial review takes place based on
a concrete legal case between two parties. In the absence of such a case, the courts
cr
have no basis to review the compliance of a legislative act with existing legislation or
the constitution. In contrast, most parliamentary systems modeled after European po-
us
litical institutions feature abstract review, which gives courts the power to rule on the constitutionality of a bill without a specific legal case. In addition, there exist hybrid constitutional systems that allow for both concrete and abstract review.15
an
This paper assumes that a bill that passes in the legislature is automatically challenged under concrete review, because it is reasonable to expect that a legal case by
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an individual or entity affected by the bill’s provisions will eventually proceed through the country’s legal system for a final ruling. In contrast, a challenge has to be initiated under abstract review by an authorized party at the CC. While there exist different sets
d
of actors across judicial systems with this authority, such as regional governments, lower
te
courts and civil society organizations, the most common utilizers of abstract review are the opposition parties in the legislature. Therefore, I assume that abstract review re-
Ac ce p
quires at least one dissenting party in the legislature. The democratic deficit associated with the authority of unelected judges to rule on bills agreed-upon by elected representatives is a much-discussed issue in the legal literature. While this paper does not comment on this discussion, this literature has provided a useful framework for analyzing constitutional systems that differ in the extent to which the legislature defers to the judiciary. Specifically, while judicial decisions are deemed the final word on a bill in some systems, either due to their explicit constitutional rules or tradition, the legislature takes the more prominent role in others by claiming the right 15
Austria, Belgium, Italy and Spain are examples of European countries with abstract review. Outside of the U.S., Latin American countries such as Bolivia, Mexico and Venezuela and European countries such as Sweden and Finland also feature concrete review.
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to override negative court rulings. The prevailing terminology of “strong-form judicial review” for the former and “weak-form judicial review” for the latter in the legal literature owes to Mark V. Tushnet and will also be used here.16 Tushnet (2006) defines weak-form judicial review as “a form of judicial review in which judges’ rulings on constitutional questions are expressly open to legislative revi-
ip t
sion in the short run.”17 In contrast, strong-form judicial review represents systems in which the legislature has neither the explicit nor the implicit power to challenge the
judiciary’s constitutional rulings. This is because overriding the judiciary in strong-
cr
form systems requires either constitutional amendments, which are difficult to pass and thus are rarely observed, or court-packing plans that aim to change the composition of
us
the court, which also face stiff resistance and thus are not common.18 The U.S. and Germany, which respectively conduct concrete and abstract review, are prominent ex-
an
amples of strong-form systems.19 In contrast, Canada, New Zealand and Israel represent weak-form systems in which the parliaments have explicit authority to override judicial rulings. Poland constitutes an example of transition from a weak-form system in which
M
the parliament could overturn a judicial ruling with a two-thirds supermajority to a strong-form one in 1997.
To model these institutional details, this paper assumes that judicial review is the
d
final stage of the game under strong-form systems, whereas another legislative bargain-
te
ing stage follows the judiciary’s rejection of a bill under weak-form systems. The former assumption captures the institutional role of the judiciary as the final decision-maker
Ac ce p
on contested legislation. On the other hand, the assumption that the outcome of the final bargaining stage prevails under weak-form systems captures the supremacy of the legislature over the judiciary. The drivers of this hierarchy may be either implicit as observed in autocratic systems with non-independent judiciaries or explicitly enshrined in the country’s constitution. For example, Canada’s Charter of Rights, Section 33, gives the parliament the power to enact bills that do not comply with CC rulings. The distinction between weak and strong-form systems is an important one to make in this 16
See Tushnet (2003) and (2006) for a more extensive discussion. Tushnet (2006), p.2. 18 See Ferejohn, Rosenbluth and Shipan (2009) for a more extensive discussion. 19 See Finck (1997) for a comparative study of the two countries’ judicial systems. 17
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paper, because the equilibrium bill naturally depends on whether there exists an additional stage after the judiciary’s ruling in which the legislature can reconvene. Moreover, allowing for both weak and strong systems extends the applicability of the theoretical results to a wider range of countries. Refraining from a discussion on which institution should be adopted, this paper takes these institutions as given to analyze how they affect
ip t
the allocation of economic benefits embedded in legislative bills. Finally, it is important to recognize the “constitutional complaint”, which gives individuals the right to appeal directly to the CC in the absence of a legal case, alleging
cr
a violation of their fundamental rights. This institution is mostly observed in European systems such as Spain and Germany.20 However, since this mechanism falls outside the
The Model
an
4
us
boundaries of the present model, it is not considered here in the interest of simplicity.
I consider two alternative models of judicial review for bills passed in a legislature:
M
concrete review and abstract review. Under both institutional settings, judicial review follows the initial stage of legislative bargaining over a bill. The main difference between the two models is in how judicial review is initiated: While I assume that it is automatic
d
in the concrete review model, this stage is reached in the abstract review model if and
te
only if a party has voted to reject the bill.21 In order to study how the ability of some legislatures to override judicial decisions affects the equilibrium, I compare the rent
Ac ce p
allocations under concrete and abstract review first for strong-form systems in which the legislatures do not have this power and second for weak-form systems in which they do. Specifically, while judicial review is the final stage of the game for the former, the legislature reconvenes after the judiciary’s rejection in the latter. Let N denote the set and |N | the number of political parties in the legislature. For 20
See Corkin (2014). The assumption that a party opposed to the bill always initiates abstract review is only for the purpose of simplifying the notation and does not change or diminish any of the model’s insights. This is because in an environment in which initiating review is an endogenous decision and is costless, an opponent of the bill would challenge it at the court if and only if its status-quo payoff were at least as great as its payoff from the proposed bill for a strong-form system, which is equivalent to the necessary and sufficient condition for voting to reject in the first place. A similar logic also applies to weak-form systems. 21
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simplicity, I only focus on legislatures of two and three parties, although the results can be generalized. In the initial bargaining stage, a party is recognized to propose a bill z according to a probability distribution in which each party i ∈ N has an exogenous |N | probability pi > 0 of being selected, where i=1 pi = 1. The other parties simultaneously vote on this bill z = (x, y) ∈ [0, 1] × Y , which consists of an ideology x ∈ [0, 1] and a
Y = {y :
|N |
yi ≤ 1 and yi ≥ 0 ∀ i ∈ N },
(1)
cr
i=1
ip t
rent allocation y from the feasible set
where yi denotes party i’s share of the rent pie. There also exists a status-quo bill
us
s = (q, y q ) ∈ [0, 1] × Y . I assume that party i’s preferences over a bill z are represented by the quasi-linear utility function
an
ˆi )2 + αyi , ui (z) = −(x − x
(2)
is no discounting of future payoffs.
M
where x ˆi denotes party i’s most-preferred ideology and α > 0 is some fixed weight. There In the first stage, if the legislature votes to reject the proposal according to a simple
d
majority rule, the game ends and the status-quo bill prevails. If the bill is accepted, the
te
judicial review stage automatically begins in the concrete review model regardless of the bill’s level of acceptance. In contrast, in the abstract review model, judicial review is
Ac ce p
initiated if and only if a party has voted to reject the bill in the legislature. Thus, bills passed with unanimity are immune to judicial challenges in this model. When this is the case, the game ends and the payoffs are distributed. In the judicial review stage, justices rule on whether to uphold the bill based on their ideological preferences. Let J denote the set and |J| the number of justices in the court, where |J| is odd. I assume that a justice j’s most-preferred ideology is given by x ˆj ∈ [0, 1] and that her preferences over a bill are represented by the utility function ˆj )2 . Note that the justices do not care about the rent allocation y uj (z) = −(x − x included in the bill z. If the justices vote to uphold the bill according to a simple majority rule, it becomes
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the law and payoffs are distributed.22 If the justices reject the bill, the status-quo prevails in strong-form systems, whereas a rejection initiates a final bargaining stage in which the legislature can override this ruling by passing new legislation in weak-form systems.23 At the beginning of this final stage, a new proposer is realized according to the same probability distribution. The recognized party i proposes a new bill zi ∈ [0, 1]×Y , which
ip t
becomes the law if it passes in the legislature according to the same simple majority rule. If not, the status-quo bill prevails. Figure 1 illustrates the timing of events.
Without loss of generality, fix party 1 as the party recognized as the proposer in
cr
the initial bargaining stage. A pure initial bargaining strategy for party i consists of a proposal z ∈ [0, 1] × Y if i = 1 and an acceptance rule ai : [0, 1] × Y → {0, 1} for all
us
i = 1 such that ai (z) = 1 indicates that party i votes to accept the proposal z in the first stage and ai (z) = 0 indicates that it rejects.24 In addition, for a weak-form system, a pure final bargaining strategy for party i consists of another proposal zi ∈ [0, 1] × Y
an
if i is the newly recognized proposer and a final acceptance rule ai : [0, 1] × Y → {0, 1} for all remaining parties i where ai (zi ) is similarly defined. Finally, a judicial review
M
strategy for justice j is a rule vj : [0, 1] × Y → {0, 1} such that vj (z) = 1 indicates that justice j votes to uphold the proposal z and vj (z) = 0 indicates that she votes to reject. |N |
|J|
Let σ ≡ (σ1 , {σi }i=2 , {σj }j=1 ) denote a strategy profile, where σ1 = z for the initial
d
proposer party, σi = ai for all i = 1 and σj = vj for all j ∈ J in strong-form systems.
te
For weak-form systems, we have σ1 = (z, z1 , a1 ), σi = (ai , zi , ai ) for all i = 1 and σj = vj for all j ∈ J. Given the equilibrium behavior of every other player, an equilibrium to
Ac ce p
this game consists of optimal strategies for each party during both the initial and the final bargaining stages (when it exists), and optimal strategies for each justice during the judicial review stage. The following formally defines a Subgame-Perfect Nash equilibrium of this model. The equilibrium conditions denoted with a prime apply to weak-form systems.
|N |
|J|
Definition 1. A strategy profile σ ≡ (σ1 , {σi }i=2 , {σj }j=1 ) constitutes a Subgame22
Simple majority is a widely-accepted rule for judicial decision-making across courts. There may be reasons why a legislature may decide not to override the judiciary despite having the authority to do so. For example, the justices may be highly trusted by the public. While these may be relevant concerns, I do not model them here in the interest of generality. 24 I assume that a party votes to accept a proposal if it is indifferent. 23
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Bill z prevails under abstract review
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Status-quo bill s prevails
an
us
Ac ce p Status-quo bill s prevails
Justices reject
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Judicial review
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Bill fails
Bill passes
d
Proposer party proposes z
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Bill passes with unanimity
Justices accept
Status-quo bill s prevails if legislature can’t override
Legislature rejects
New proposer party i proposes zi if legislature overrides
Legislature accepts
Bill z prevails
Bill zi prevails
Figure 1: Timing of Events.
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Perfect Nash equilibrium if and only if the following conditions are satisfied: (E1)’ In the final bargaining stage in which party k ∈ N is recognized as the new proposer, ai (zk ) = 1 for i = k if and only if ui (zk ) ≥ ui (s). Party k’s proposal zk solves
subject to ui (zk ) ≥ ui (s) such that
i=k
uk (zk )
ai (zk ) ≥
ip t
max
zk ∈[0,1]×Y
|N |−1 2 .
cr
(E2) Given the proposal z, vj (z) = 1 for justice j if and only if uj (z) ≥ uj (s). |N |
i=1 pi uj (zi ).
us
(E2)’ Given the proposal z, vj (z) = 1 for justice j if and only if uj (z) ≥
(E3) For both concrete and abstract review, ah (z) = 1 for h = 1 if and only if uh (z) ≥
an
uh (s).
(E3)’ For both concrete and abstract review, ah (z) = 1 for h = 1 if and only if uh (z) ≥ |J| uh (s) whenever the proposal z is such that j=1 vj (z) ≥ |J|+1 2 . Otherwise, ah (z) =
–
|N |
i=1 pi uh (zi )
M
1 for h = 1 if and only if
≥ uh (s) for concrete review and for abstract review if there
te
d
exist some i = h such that ai (z) = 0; |N | – uh (z) ≥ i=1 pi uh (zi ) for abstract review if a−h (z) = 1. (E4) For concrete review, party 1 proposes z ∗ ∈ argmax u1 (z) subject to |J|
Ac ce p ≥
|N |−1 2
and
j=1 vj (z)
argmax u1 (z) subject to
z∈[0,1]×Y
≥
z∈[0,1]×Y
i=1 ai (z)
|J|+1 2 .
For abstract review, party 1 proposes z¯ ∈
i=1 ai (z)
= |N | − 1 if and only if u1 (¯ z ) ≥ u1 (z ∗ ).
Otherwise, party 1 proposes z ∗ .
|N | (E4)’ For concrete review, party 1 proposes z ∗ if and only if u1 (z ∗ ) ≥ i=1 pi u1 (zi ). |J| Otherwise, party 1 proposes any z such that i=1 ai (z) ≥ |N 2|−1 and j=1 vj (z) < |J|+1 2 .
For abstract review, party 1 proposes z ∈ {z ∗ , z¯} such that u1 (z) = max{u1 (z ∗ ), u1 (¯ z )} |N | if and only if u1 (z) ≥ i=1 pi u1 (zi ). Otherwise, party 1 proposes any z such that |J| |N |−1 and j=1 vj (z) < |J|+1 i=1 ai (z) ≥ 2 2 .
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Condition (E1)’ requires that a party votes to accept a proposal during the final bargaining stage if and only if it weakly prefers the final proposed bill to the status-quo and that the final proposer’s bill maximizes its payoff subject to its coalition’s acceptance constraints. Conditions (E2) and (E2)’ impose the same acceptance criteria on the justices during the judicial review stage, except for the modification of the justices’
ip t
payoff in (E2)’ in case of rejection. As in condition (E1)’, conditions (E3) and (E3)’ impose optimal behavior on the non-proposer parties during the initial bargaining stage.
stage maximizes its expected continuation payoff.
Concrete Judicial Review Equilibrium
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5
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Finally, conditions (E4) and (E4)’ require that party 1’s proposal in the initial bargaining
an
This section characterizes the equilibrium under concrete review for strong and weakform systems. For simplicity, the analysis is restricted to only two and three-party legislatures.25 For two-party legislatures, I assume that the approval of the non-proposer
M
party is required to pass a bill. Instead of the judiciary, I refer to the court’s median justice m, which is defined based on the median value of uj (z) − uj (s) for a given bill z
d
for strong-form systems and on the justices’ expected payoffs from the final bargaining |N | stage, i.e. based on the median value of uj (z) − i=1 pi uj (zi ), for weak-form systems. librium rent allocations:26
te
The following proposition establishes the effectiveness of concrete review on the equi-
Ac ce p
Proposition 1. In both strong and weak-form systems, even though the justices’ preferences are not defined over the set of feasible rent allocations, concrete review affects the equilibrium rent allocation relative to the equilibrium that would be observed in its absence only if the median justice’s acceptance constraint is binding. To gain an intuition for how the equilibrium effects of concrete review materialize, it is important to first understand the equilibrium in the absence of a binding judicial constraint. To do so, consider a two-party legislature in a strong-form system and 25
The former can be interpreted as representing a majoritarian electoral system, whereas the latter might represent a more fractionalized legislature observed under proportional representation systems. 26 All proofs are in the Appendix.
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suppose the parameter values are such that the solution to the proposer’s problem is interior. Then, the two parties required to pass a bill settle on a compromise ideology x∗ that lies at the midpoint between their most-preferred ideologies and positive rent shares that are allocated to achieve the partner’s indifference between the proposal and the status-quo bill. On the other hand, the status-quo bill and the parties’ ideologies
ip t
may rule out an interior solution, allocating the entire rent pie to one of the two parties in equilibrium. For example, if party 2’s status-quo payoff is sufficiently small such that
x1 , (1, 0)) < u2 (q, y q ) < u2 (x∗ , (1, 0)), the proposer receives all the rents in equilibu2 (ˆ
cr
rium and the parties agree on an ideology that is closer to x ˆ1 than to x ˆ2 .
When the judicial constraint is binding, the median justice m’s status-quo payoff
us
ˆ2 < x ˆm < q, then the pins down the equilibrium bill’s ideology. For example, if x ˆ1 < x optimal ideology x equals 2ˆ xm − q, which is obtained by bringing the median justice to
an
indifference between the proposal and the status-quo bill. In such cases, the equilibrium rent allocation may or may not be affected by concrete review, depending on the statusquo bill and the relative positions of the parties’ ideologies. Specifically, as stated in
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Proposition 1, while a binding judicial constraint is necessary for the equilibrium rent allocation to be influenced by concrete review, it is not sufficient. To see this, consider a situation without judicial review in which u2 (x∗ , (0, 1)) > u2 (q, y q ) > u2 (x∗ , (1, 0))
d
so that the equilibrium bill includes the compromise ideology x∗ and a sufficient posi-
te
tive rent share for party 2 that buys its acceptance. If the median justice prefers the status-quo ideology q to the compromise ideology x∗ , then strong-form concrete review
Ac ce p
implies that the equilibrium ideology shifts from x∗ to another x that the median justice would accept. If the inequality u2 (x, (0, 1)) > u2 (q, y q ) > u2 (x, (1, 0)) also holds for this ideology x, then the solution is interior, involving a different rent allocation than the one that would have prevailed without a binding judicial constraint. On the other hand, for x1 , (1, 0)) ≥ u2 (q, y q ) so that the equilibrium bill in the absence of instance, suppose u2 (ˆ judicial review would equal z = (ˆ x1 , (1, 0)). If the median justice prefers the status-quo ideology q to x ˆ1 such that satisfying the judicial constraint implies moving away from x ˆ1 to another ideology x that party 2 would still accept with a zero rent share, then the equilibrium rent allocation remains unaffected by strong-form concrete review. In sum, strong-form concrete review affects the equilibrium rent allocation directly
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through the median justice’s acceptance constraint relative to the equilibrium that would be observed in its absence. While this direct channel also exists in weak-form systems in which the legislature is able to reconvene following the judiciary’s rejection of its bill, concrete review may also impact the equilibrium rent allocation in such systems through an indirect channel by inducing the proposer to bypass the judiciary. Specifically, the
ip t
proposer party in a weak-form system faces two options when offering a bill: to gain the judiciary’s approval, or to bypass it by making a proposal that the judiciary would reject in order to initiate the final bargaining stage. For the former option, how concrete
cr
review influences the equilibrium rent allocation is intuitively identical to strong-form
systems - the only difference is a technical one due to the change in the median justice’s
us
acceptance constraint that now reflects her expected utility from the final bargaining stage based on the parties’ recognition probabilities as the new proposer. In contrast,
an
the latter option implies that it is the mere presence of judicial review that influences the equilibrium rent allocation. Based on a comparison of these two options, the conditions under which the proposer would choose to settle with the judiciary in equilibrium
M
instead of bypassing it are presented in the following corollary:
Corollary 1. In the concrete judicial review equilibrium of a weak-form system, the proposer party 1 gains the judiciary’s approval when it is binding as opposed to bypassing
te
d
x1 − x ˆm )2 are sufficiently small. it if and only if p1 and (ˆ Note that the proposer never bypasses the judiciary if the median justice’s acceptance
Ac ce p
constraint is not binding since there exists a positive probability that it may no longer be the proposer during the final bargaining stage. In contrast, when this constraint is binding, Corollary 1 first indicates that the proposer settles with the judiciary if its probability of being recognized once again as the proposer during the final bargaining stage is too low. This is intuitive - the utility loss from giving in to the judiciary may be outweighed by the expected utility loss from foregoing proposer power. In fact, the analysis indicates that when p1 = 1 so that party 1 is fixed as the final proposer, it always bypasses the judiciary in order to not accommodate its median justice regardless of their ideological proximity. Second, for p1 < 1, not bypassing the judiciary requires that the proposer and the median justice have sufficiently similar ideologies, because 19
Page 20 of 38
ideological proximity decreases the utility cost to the proposer from settling. As the extent to which the median justice constrains the proposer’s optimal bill in the initial bargaining stage increases, party 1’s incentive to propose a bill that would ensure the final bargaining stage is reached on the equilibrium path grows stronger. Overall, Corollary 1 implies that weak-form concrete review may affect the equilib-
ip t
rium rent allocation relative to the equilibrium that would be observed in its absence in two separate ways: When the equilibrium bill passes both the legislature and the
judiciary, the effect of concrete review is direct (when it exists, as established in Propo-
cr
sition 1). The initial proposers in strong and weak-form systems behave identically in equilibrium. In contrast, if the parameters are such that party 1 has a sufficiently high
us
probability of being recognized again as the proposer and sufficient ideological distance from the median justice, the effect of concrete review on the equilibrium rent allocation
an
becomes indirect - while the final equilibrium bill does not incorporate the median justice’s acceptance constraint, the fact that the final bargaining stage is reached on the
6
M
equilibrium path is a consequence of its existence.
Abstract Judicial Review Equilibrium
d
This section characterizes the equilibrium under abstract review for strong and weak-
te
form systems. However, unlike the previous section, the analysis only applies to threeparty legislatures since the unanimity requirement for passing bills in a two-party legis-
Ac ce p
lature renders abstract review ineffective. Proposition 2. In a three-party legislature ruled by simple majority and subject to abstract review, the justices’ ideological preferences affect the equilibrium rent allocation in both strong and weak-form systems relative to the equilibrium that would be observed in their absence only if the median justice’s acceptance constraint is binding. The main difference between the analyses behind Propositions 1 and 2 is the existence of an additional channel through which the proposer can bypass the judiciary in both strong and weak-form systems by forming a unanimous coalition in the legislature. If the parameters of the model are such that the proposer either prefers gaining the approval of 20
Page 21 of 38
the judiciary or initiating the final bargaining stage over making its bill challenge-proof by securing unanimity in the legislature, then the equilibrium effects of concrete and abstract review are equivalent. However, in the opposite scenario, while the justices’ ideological preferences do not directly affect the equilibrium, the fact that the proposer chose to secure unanimity where only a simple majority would be sufficient for passage
ip t
in the absence of judicial review demonstrates the additional indirect channel through which abstract review may work. Similar to Corollary 1, the following result summarizes the conditions under which forming a unanimous coalition in the legislature becomes the
cr
proposer’s preferred alternative:
Corollary 2. Under abstract review, the proposer party 1 forms a unanimous coalition
us
ˆm )2 is in equilibrium if and only if the parties are sufficiently close ideologically, (ˆ x1 − x
an
sufficiently large and, in a weak-form system, p1 is sufficiently low.
Corollary 2 indicates that the additional channel through which abstract review may affect the equilibrium rent allocation, by inducing the proposer to form a unanimous
M
coalition, is observed in equilibrium if and only if settling with the median justice is ideologically undesirable, the unanimity bargain is not too costly and/or initiating the final bargaining stage is too risky for the proposer due to a sufficiently low probability of
d
being recognized again as the proposer. For such parameter values, the proposer prefers
on the equilibrium path.
te
to make its bill challenge-proof and ensure that the judicial review stage is not reached
Ac ce p
The following section builds on the previous results in order to compare the rent allocations that arise under concrete and abstract review and their welfare consequences.
7
Comparisons of Judicial Review Institutions
The previous two sections established the conditions under which judicial review may affect the equilibrium rent allocation even though the justices only care about the ideological component of a bill. Based on Propositions 1 and 2, the following proposition summarizes how this effect compares across concrete and abstract review.
21
Page 22 of 38
Proposition 3. In a three-party legislature ruled by simple majority, the number of parties receiving a positive rent share in equilibrium is higher under abstract review than under concrete review only if the bill is challenge-proof. Otherwise, the equilibrium rent allocations are identical between the two institutions. Recall that the main difference between the two types of judicial review is the pro-
ip t
poser’s ability under abstract review to secure a challenge-proof bill in the legislature
through unanimity. If the proposer finds this an unpalatable option due to the high com-
cr
pensation the third party requires, then the equilibrium of the two institutions would be
identical. However, if the equilibrium bill under abstract review allocates a positive rent
us
share to more parties than under concrete review, then this bill must be unanimously agreed-upon. When this is the case, both non-proposer parties must have required rent compensation in addition to the ideology they have consented to in order to become
an
part of the unanimous coalition. On the other hand, if the parties’ ideologies are sufficiently close such that the optimal ideology that would secure party 2’s acceptance also secures party 3’s acceptance without rent compensation, then we would not observe any
M
differences in the equilibrium rent allocation between concrete and abstract review even though the abstract judicial review equilibrium features unanimity in the legislature.
d
To gain an intuition for how the converse result may not hold, consider the following ˆ2 < x ˆ3 < q < x ˆm and suppose the median justice’s acceptance conexample: Let x ˆ1 < x
te
straint is binding such that the concrete judicial review equilibrium bill includes x = q, yi = yiq > 0 for i ∈ {2, 3}, yh = 0 for h = i and y1 = 1 − yi . If the proposer prefers
Ac ce p
to form a unanimous coalition in equilibrium and the parameter values are such that the compromise ideology that would be offered in an interior solution makes both nonproposer parties strictly better-off compared to their status-quo payoffs even with a zero rent share, then the equilibrium rent allocation under abstract review would award the entire rent pie to the proposer. Intuitively, this requires that the non-proposer parties are sufficiently disadvantaged in the status-quo. Hence, more parties would be receiving a positive rent share under the concrete judicial review equilibrium compared to abstract review in this situation. Having established the conditions under which the two types of judicial review affect the equilibrium rent allocations and discussed when abstract review would lead to a 22
Page 23 of 38
greater diffusion of rents in the legislature, the rest of this section investigates further the question of which parties benefit from judicial review. Proposition 1 indicated that observing the direct effect of concrete review on the equilibrium rent allocation requires that the median justice’s acceptance constraint is binding and that settling with the judiciary is the proposer’s preferred option in equilibrium, which is a result that applies
ip t
equally to abstract review. Furthermore, the proposer must be able to manipulate its partner’s rent share from the level that would have prevailed in the absence of a binding
judicial constraint in order to satisfy its acceptance constraint. For when such a direct
cr
effect exists, the following corollary to the previous propositions summarizes the rela-
tionship between a partner party’s ideological proximity to the median justice and its
us
rent share in equilibrium:
xm − q} or x ˆh > max{q, 2ˆ xm − q}, where h ∈ {2, 3} Corollary 3. Suppose x ˆh < min{q, 2ˆ
an
is the proposer party 1’s simple majority coalition partner for a given proposal z. Then, xh − x ˆm )2 if the median justice’s acceptance party h’s rent share yh is non-decreasing in (ˆ
M
constraint is binding.
Corollary 3 is based on the fact that the proposer never strives in equilibrium to make its partner strictly better-off than the status-quo. Consequently, the partner party’s
d
proximity to the proposed ideology that gains the median justice’s approval affects the
te
rent share proposed to it. Specifically, to the extent that the partner’s further ideological alignment with the median justice benefits it, the proposer compensates for this surplus
Ac ce p
payoff by offering a lower rent share to its partner in an interior solution. On the other hand, if the proposed ideology makes the partner party strictly better-off compared to the status-quo even when coupled with a zero rent share, then the optimal rents allocated to the partner party remain constant at zero. Note that more ideological proximity to the median justice always increases party h’s ideological utility when its most-preferred xm − q and when the median ideology x ˆh lies outside the interval formed by q and 2ˆ justice’s acceptance constraint is binding so that the above result is obtained. However, if x ˆh lies inside this interval, then whether greater ideological proximity to the median justice necessarily leads to weakly lower rents depends on the location of the proposer’s ˆm < x ˆh < q < x ˆ1 such that the optimal most preferred ideology x ˆ1 . For example, if x 23
Page 24 of 38
ideology x that would gain the median justice’s approval equals the status-quo, then a marginally greater ideological proximity to the median justice would imply moving away from the proposed ideology x for the partner party and hence lead to weakly higher rents for it in equilibrium. While Corollary 3 predicts how the rent share of the partner party responds to
ip t
ideological proximity with the median justice under both concrete and abstract review, the question of how a party’s welfare is affected as a result remains to be answered.
Proposition 3 established that the equilibria of concrete and abstract review are identical
cr
when the proposer either settles with the judiciary or initiates the final bargaining stage. Hence, the parties’ equilibrium payoffs do not depend on the type of judicial review for
us
parameter values that produce such equilibria. On the other hand, the equilibrium may differ between the two institutions if and only if the proposer forms a unanimous
an
coalition under abstract review. The following result presents the conditions under which the parties’ welfare would depend on the type of judicial review: Proposition 4. In a three-party legislature ruled by simple majority, the parties’ welfare
M
depend on the type of judicial review only if the equilibrium bill under abstract review is challenge-proof. If the status-quo bill s sufficiently favors party i such that ai (z ∗ ) = 0 for i = 1 or ai (zk ) = 0 for i = k, where z ∗ and zk represent the two possible equilibrium
d
outcomes under concrete review, then party i’s equilibrium payoff is strictly higher under
te
abstract review with a challenge-proof bill.
Ac ce p
In addition to establishing that the parties’ welfare differ under the two types of judicial review only when the proposer forms a unanimous coalition in the abstract judicial review equilibrium, Proposition 4 indicates that it is the party that would be left out of the simple majority coalition in the concrete judicial review equilibrium that primarily benefits from abstract review. Specifically, a party votes to reject proposal z ∗ or zk if and only if its status-quo utility is higher than what the bill promises. Since forming a unanimous coalition requires giving each party at least its status-quo payoff, an abstract judicial review equilibrium with a challenge-proof bill always yields a higher utility for the party that would otherwise be kept out of the simple majority coalition with a zero rent share. 24
Page 25 of 38
Note that observing this welfare gain requires the proposer to prefer forming a unanimous coalition under abstract review, which in turn requires, according to Corollary 2, that the three parties are not too ideologically distant from each other. In this environment, it must be the case that the party left out of the simple majority coalition under concrete review commands sufficiently high status-quo rents that partnering with it is not
ip t
optimal for the proposer. Accordingly, being part of the proposer’s unanimous coalition allows this party to weakly increase its equilibrium rent share. This result implies that when the conditions in Corollary 2 are satisfied such that forming a unanimous coalition
cr
is the proposer’s preferred option in equilibrium, abstract review promotes the welfare
of the party that commands high status-quo rents relative to the other non-proposer
us
party, whereas concrete review allows for a channel through which the legislature can redistribute the concentrated status-quo rents among the other two parties.
an
An alternative way of evaluating the relative merits of concrete and abstract review is comparing their welfare gains to those parties that would be kept out of the simple majority coalition with a zero rent share in the absence of judicial review. The following
M
corollary takes up this task:
Corollary 4. Suppose the abstract judicial review equilibrium bill is challenge-proof.
d
Then, judicial review yields a lower equilibrium payoff for the party that would reject the
te
proposer’s bill in the absence of judicial review only if it is concrete. Corollary 4 follows directly from Proposition 4 and its proof is therefore omitted.
Ac ce p
Focusing on a party that votes to reject the proposer’s bill in the absence of judicial review, it indicates that this party’s payoff cannot be lower in the abstract judicial review equilibrium with unanimity. This is because satisfying this party’s acceptance constraint in order to form the unanimous coalition requires awarding sufficiently more surplus to it, which may or may not be in the form of rents. On the other hand, whether this party improves its welfare under concrete review compared to the no-judicial review equilibrium depends on the the median justice’s ideology. Specifically, if the optimal ideology in the concrete judicial review equilibrium determined by the median justice decreases this party’s ideological utility and it still receives a zero rent share in this equilibrium as the non-partner party, then concrete review makes this party worse-off. 25
Page 26 of 38
Therefore, whether judicial review improves the welfare of the party previously left out of the simple majority coalition depends on the type of review, and more importantly, on whether abstract review in fact induces an equilibrium with a unanimous coalition. As re-iterated throughout the analysis, this is the main channel through which the two
8
ip t
institutions may differ in equilibrium.
Conclusion
cr
This paper studied the comparative effects of concrete and abstract judicial review on the political rents allocated among the political parties in a legislature. Consisting of
us
both an ideology and a rent allocation component, a bill that passes in the legislature becomes subject to judicial review (automatically upon legislative approval under con-
an
crete review and following a challenge by an opposition party under abstract review) in which the justices vote solely based on their ideological preferences. The analysis established the conditions under which these two types of judicial review affect the equi-
M
librium rent allocation in the legislature despite the justices not having preferences over it. The analysis applied both to strong-form systems in which judicial rulings are final and to weak-form systems in which the legislature has the power to reconvene following
d
the judiciary’s rejection of its bill. In this environment, this paper compared the two
te
types of judicial review based on their potential for creating a greater diffusion of rents in the legislature and their welfare implications for those parties receiving zero rents in
Ac ce p
the absence of judicial review.
The results of this paper have implications for the design of judicial institutions in new democracies and their reform in more advanced ones. Specifically, in environments in which the size of political rents is especially large and vote-buying is a common legislative practice, it is important to recognize that abstract review may lead to a great diffusion of these rents across the political spectrum whenever the judiciary and the legislature are ideologically distant from each other. In contrast, when the court’s median justice and the legislature are more in ideological agreement, the type of judicial review a new democracy chooses to adopt may not matter as much in terms of the diffusion of rents. Moreover, adopting abstract review in an environment in which there exists 26
Page 27 of 38
ideological hostility between the legislature and the judiciary would mostly benefit the party that commands large rents in the status-quo. There are a number of interesting directions in which this model can be extended. As in Vanberg (1998), one such direction would be to to endogenize the decision to challenge a bill under abstract review and make this a risky decision for the opposition parties,
ip t
such as introducing the possibility of electoral defeats following unsuccessful constitutional challenges. Likewise, the final legislative bargaining stage can be structured such
that the supporters of the initial bill are barred from proposing a new bill following a
cr
judicial rejection. The interactions between the legislature and the judiciary could also be modeled more dynamically, allowing for repeated challenges of bills passed in the
us
legislature. Finally, the judicial review stage can be enriched by endowing the justices with preferences on the various aspects and implications of their decision-making pro-
an
cess. For example, the justices may have an aversion to their rulings being overturned by subsequent legislation or they may directly have preferences on the distribution of rents across the political spectrum. Embedding such aspects of judicial decision-making that
M
have been modeled and tested in the existing literature would be a promising pursuit
Ac ce p
te
d
for future projects.
27
Page 28 of 38
9
APPENDIX
Proof of Proposition 1. First, let |N | = 2 and consider a strong-form system. Given a ˆ j )2 . proposal z = (x, y), justice j votes to accept z if and only if (x − x ˆj )2 ≤ (q − x If the median justice m prefers the proposed ideology x to the status-quo ideology q, the judiciary accepts the proposal z. Thus, proposal z becomes the law if and only if
ip t
ˆm )2 . Taking the judiciary’s optimal behavior as given, the Lagrangian (x − x ˆm )2 ≤ (q − x
cr
the proposer party 1 solves can be written as L = −(x − x ˆ1 )2 + αy1
(3)
us
+λ1 [−(x − x ˆ2 )2 + α(1 − y1 ) − u2 (s)] + λ2 [−(x − x ˆm )2 + (q − x ˆ m )2 ]
an
+μ1 x − μ2 (x − 1) + γ1 y1 − γ2 (y1 − 1).
Consider a solution in which the median justice’s acceptance constraint does not bind
M
so that λ2 = 0. An interior solution to (3) in this case yields x∗ =
x ˆ1 − x ˆ2 2
=α
−1
2
x ˆ1 − x ˆ2 2
2
(4) 2
− (q − x ˆ2 ) +
αy2q
;
(5)
2
− (q − x ˆ2 ) +
αy2q
;
(6)
Ac ce p
y2∗
d
=1−α
−1
te
y1∗
x ˆ1 + x ˆ2 ; 2
where the rent allocation y ∗ = (y1∗ , y2∗ ) is obtained by bringing party 2 to indifference, i.e. letting u2 (x∗ , y ∗ ) = u2 (q, y q ). This solution requires um (x∗ , y ∗ ) ≥ um (q, y q ). For x1 , (1, 0)) ≥ u2 (q, y q ) and corner solutions, first suppose u2 (x∗ , (1, 0)) ≥ u2 (q, y q ). If u2 (ˆ ˆ1 , then the optimal proposal is given by x = x ˆ1 and y = (1, 0). λ2 = 0 when x = x x1 , (1, 0)) < u2 (q, y q ), then the optimal proposal is implicitly If, on the other hand, u2 (ˆ defined by u2 (x, (1, 0)) = u2 (q, y q ), which yields an ideology x between x∗ and x ˆ1 and a rent allocation y = (1, 0). Second, suppose u2 (q, y q ) > u2 (x∗ , (0, 1)). Now, the optimal proposal is implicitly defined by setting u2 (x, (0, 1)) = u2 (q, y q ), which yields an ideology ˆ2 and a rent allocation y = (0, 1). Each of these possible corner x between x∗ and x 28
Page 29 of 38
solutions for proposal z requires the median justice’s acceptance. Now consider a solution in which the median justice’s acceptance constraint binds so that λ2 > 0. In this case, the status-quo pins down the optimal proposal such that the ˆm )2 and depends on the relative positions optimal ideology x satisfies (x − x ˆm )2 = (q − x of the most-preferred ideologies and the status-quo. For example, if x ˆ1 < x ˆ2 < x ˆm < q, xm − q, (0, 1)) > u2 (q, y q ) > u2 (2ˆ xm − q, (1, 0)), then x = 2ˆ xm − q. In this case, if u2 (2ˆ
ˆ2 )2 − (q − x ˆ2 )2 + αy2q ; y1 = 1 − α−1 (2ˆ xm − q − x
cr
which yields
ip t
xm − q, y) = u2 (q, y q ), then the optimal rent allocation y is obtained by solving u2 (2ˆ
(8)
us
ˆ2 )2 − (q − x ˆ2 )2 + αy2q . xm − q − x y2 = α−1 (2ˆ
(7)
ˆ2 < x ˆ1 , then x = q. If, in addition, u2 (q, (0, 1)) > u2 (q, y q ) > Alternatively, if x ˆm < q < x u2 (q, (1, 0)), i.e. if y2q ∈ (0, 1), then the optimal rent allocation is given by y = y q . In
an
other words, the optimal proposal z is the status-quo bill s. Note that these possible solutions represent cases in which party 2 can be brought to indifference with a positive the rent allocation becomes y = (1, 0).
M
rent share. In contrast, for example, if u2 (x, (1, 0)) ≥ u2 (q, y q ) for the optimal x, then Overall, the analysis implies that strong-form concrete review affects the equilibrium
d
rent allocation when the median justice’s acceptance constraint is binding and when the
te
parameters are such that party 2’s rent share can be manipulated from the level that would have prevailed if the median justice’s constraint did not bind to gain its accep-
Ac ce p
tance. Note that this result stays fundamentally the same when |N | = 3 in a strong-form system: After substituting the party 2 subscript with a general subscript for party 1’s coalition partner and noting that the non-partner party never receives a positive rent share in equilibrium, the above analysis for two-party legislatures also characterizes the equilibrium in three-party legislatures. Second, let |N | = 2 and consider a weak-form system in which party k ∈ {1, 2} denotes the randomly selected proposer in the final bargaining stage. The equilibrium of this stage is identical to the strong-form system characterization above for when the median justice’s acceptance constraint does not bind and thus is not repeated here. Given the parties’ optimal final bargaining strategies and an initial proposal z with ideology x,
29
Page 30 of 38
justice j votes to accept z if and only if (x − x ˆj )2 ≤ p1 (x1 − x ˆj )2 + p2 (x2 − x ˆj )2 , where xk denotes the optimal ideology that would be proposed by party k = 1, 2 during the final bargaining stage. Thus, if the justice j with the median value of uj (z) − 2i=1 pi uj (zi ) prefers the proposal z, then z becomes the law. Party 1 faces two options during the initial bargaining stage: To make a proposal
ip t
that would be accepted by both party 2 and the median justice, or to make a proposal that party 2 would accept but the median justice would reject, thereby initiating the final bargaining stage. The characterization of the equilibrium bill for the former option
cr
follows the analysis for strong-form systems, except for the fact that the median justice’s ˆm )2 + p2 (x2 − x ˆm )2 . For the acceptance constraint is now given by (x − x ˆm )2 ≤ p1 (x1 − x
us
latter option, any proposal that fails to satisfy the median justice’s acceptance constraint is optimal as long as party 2’s acceptance constraint 2i=1 pi u2 (zi ) ≥ u2 (s) is satisfied.
an
In this case, the equilibrium outcome is determined by the final bargaining stage. Consequently, weak-form concrete review has an effect on the equilibrium rent allocation under the same conditions as strong-form systems if party 1 prefers the first
M
option outlined in the above paragraph. However, if the second option is preferred, the effect of judicial review on the equilibrium rent allocation becomes indirect and materializes through inducing party 1 to bypass it. As before, considering a legislature with
d
|N | = 3 does not change these fundamental results. The main difference it introduces to
te
the analysis is a technical one that modifies the median justice’s expected utility from
Ac ce p
the final bargaining stage. This completes the proof of Proposition 1. Proof of Corollary 1. In the concrete judicial review equilibrium of a weak-form system, party 1 prefers to gain the median justice’s acceptance over bypassing the judiciary if and only if its utility from the optimal bill that would be accepted both in the legislature and by the median justice is at least as great as its expected utility from the final bargaining stage. Formally, letting z ∗ denote the optimal bill under the former option, this condition |N | requires that u1 (z ∗ ) ≥ i=1 pi u1 (zi ), which can be written as u1 (z ∗ ) − u1 (z2 ) ≥ p1 u1 (z1 ) − u1 (z2 )
(9)
30
Page 31 of 38
for legislatures of |N | = 2; and as u1 (z ∗ ) − (p1 + p2 )u1 (z2 ) − (p1 + p3 )u1 (z3 ) ≥ p1 u1 (z1 ) − u1 (z2 ) − u1 (z3 )
(10)
for legislatures of |N | = 3. When the median justice’s acceptance constraint is not binding, we have z ∗ = z1 so that both (9) and (10) automatically hold for all parameter
ip t
values. On the other hand, if this constraint is binding, first note that the conditions require p1 to be sufficiently small in order to hold. Second, since u1 (z ∗ ) ≤ u1 (z1 ) when
cr
the constraint is binding, the conditions require u1 (z ∗ ) and u1 (z1 ) to be sufficiently close,
which in turn requires (ˆ x1 − x ˆm )2 to be sufficiently small. This completes the proof of
us
Corollary 1.
Proof of Proposition 2. Consider a strong-form system and note that the equilibrium of
an
the judicial review stage is identical to its corresponding characterization in the proof of Proposition 1. Taking the judiciary’s optimal behavior as given, party 1 chooses one of the following two options in equilibrium: Solve the Lagrangian in (3), except
M
for replacing party 2’s acceptance constraint with his preferred partner’s, in order to settle with the judiciary; or secure unanimity in the legislature, thereby making the bill challenge-proof. The characterization of the optimal bill z ∗ with which to pursue the first
d
alternative follows the analysis in the proof of Proposition 1 and is therefore not repeated
te
here. As in Definition 1, let z¯ denote the optimal bill with which to attain unanimity z ), then party 1 behaves identically in the equilibrium in the legislature. If u1 (z ∗ ) ≥ u1 (¯
Ac ce p
of concrete and abstract review so that their equilibrium effects are the same. In the opposite scenario, the fact that party 1 forms a challenge-proof coalition by potentially allocating positive rents to a party whose support is not required to pass the bill in the legislature constitutes abstract judicial review’s indirect effect, which again requires a binding judicial constraint. Except for the fact that party 1 can now secure unanimity in addition to settling with the judiciary or bypassing it, the weak-form abstract review analysis also follows the proof of Proposition 1. When the unanimity option is preferred in a weak-form system, the effect of abstract review on equilibrium would again be indirect as under a strong-form system.
31
Page 32 of 38
Proof of Corollary 2. The proof follows the analysis in Corollary 1. Party 1 prefers to form a unanimous coalition over gaining the median justice’s acceptance in a strongform system and over either gaining the median justice’s acceptance or initiating the final bargaining stage in a weak-form system if and only if its utility from the optimal bill that would induce unanimity in the legislature is at least as great as its utility from
ip t
either of the available alternatives. Specifically, party 1 forms a unanimous coalition in equilibrium instead of settling with the judiciary in a strong-form system if and only if z ) ≥ u1 (z ∗ ), which requires (ˆ x1 −ˆ xm )2 to be sufficiently large and the parties to be ideu1 (¯
cr
ologically close. In the equilibrium of a weak-form system, forming a unanimous coalition |N | is preferred to initiating the final bargaining stage if and only if u1 (¯ z ) ≥ i=1 pi u1 (zi ),
us
which can be written as
(11)
an
z ) − (p1 + p2 )u1 (z2 ) − (p1 + p3 )u1 (z3 ) u1 (¯ ≥ p1 . u1 (z1 ) − u1 (z2 ) − u1 (z3 )
When the acceptance constraint of the party who would not belong to the simple majority coalition is not binding even when awarded a zero rent share, then z¯ = z1 so that (11)
M
holds automatically. However, when this constraint is binding, (11) requires a sufficiently z ) and u1 (z1 ) in order to hold. The latter in turn low p1 and a sufficiently close u1 (¯
d
requires sufficient ideological proximity between the parties in the legislature.
te
Proof of Proposition 3. Suppose that the equilibrium bill under abstract review awards a positive rent share to more parties than under concrete review. Since the equilibria
Ac ce p
under the two types of review are identical if the proposer prefers to settle with the judiciary or to initiate the final bargaining stage, the equilibrium bill under abstract review has to be unanimously agreed-upon. To see that the converse is not necessarily true, consider an interior concrete judicial review equilibrium in which the judicial constraint is binding with y1 > 0 and yi > 0 for exactly one party i = 1. In an interior abstract judicial review equilibrium with a challenge-proof bill, the proposer would offer the compromise ideology x∗∗ =
x ˆ1 +ˆ x2 +ˆ x3 . 3
If the parameter values are such that ui (x∗∗ , (y1 , yh = 0, yi )) > ui (q, y q ) for h = i and h ∈ {2, 3}, then at least as many parties receive a positive rent share in the concrete judicial review equilibrium as under abstract review. 32
Page 33 of 38
Proof of Corollary 3. Under the Corollary’s assumption, x ˆh for h ∈ {2, 3} lies strictly outside the interval formed by the ideologies q and 2ˆ xm − q within which the optimal proposal’s ideology lies. For all parameter values such that judicial review is not the last stage reached on the equilibrium path, partner party’s rent share yh remains unaffected by (ˆ xh − x ˆm )2 . However, for all other parameters, uh (z) is decreasing in (ˆ xh − x ˆ m )2 if the median justice’s acceptance constraint is binding. Denoting by x the optimal
ip t
ˆm )2 , if u2 (x, (0, 1)) > u2 (q, y q ) > u2 (x, (1, 0)), ideology for which (x − x ˆm )2 = (q − x
ˆm )2 implies that yh must increase accordingly in then a marginal increase in (ˆ xh − x
cr
order to maintain party h’s indifference such that uh (z) = uh (s). On the other hand, if
xh − x ˆm )2 implies that yh remains u2 (x, (1, 0)) ≥ u2 (q, y q ), then a marginal increase in (ˆ
us
zero as long as this inequality is maintained. To see why the assumption is needed xm , q) and x ˆ1 > q such that for this result to hold, suppose, for instance, that x ˆh ∈ (ˆ x ˆ1 +ˆ xh 2
> q. Then, the optimal x equals q and a marginal increase in (ˆ xh − x ˆm )2 implies
an
that uh (z) increases, indicating that yh must decrease in an interior solution.
M
Proof of Proposition 4. The first statement in the proposition follows directly from Proposition 3: Since the equilibria under concrete and abstract review are identical if the proposer settles with the judiciary or initiates the final bargaining stage on the equilib-
d
rium path, then the equilibrium bill must be challenge-proof under abstract review if the equilibrium outcomes are different. However, a challenge-proof bill may be identical to
te
the equilibrium bill under concrete review. For example, suppose the bill z ∗ that gains party 2’s and the judiciary’s approval in the concrete judicial review equilibrium is such
Ac ce p
that y2 > 0 and y3 = 0. If u3 (z ∗ ) ≥ u3 (s), then this bill is challenge-proof under abstract review as it also has party 3’s approval. Therefore, the converse of the first statement is not necessarily true.
For the second part of the proposition, first consider a strong-form concrete judicial review equilibrium in which the bill z ∗ = (x, (y1 , y2 , 0)) along with a sufficiently high value for u3 (s) yield u3 (z ∗ ) < u3 (s), i.e. a3 (z ∗ ) = 0, where the choice of party 3 as the non-partner party is without loss of generality. Since party 3’s acceptance constraint u3 (z) ≥ u3 (s) must be satisfied in an abstract judicial review equilibrium with a challenge-proof bill, its utility must necessarily increase. Second, consider a weak-form
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concrete judicial review equilibrium in which the final bargaining stage is reached on the equilibrium path and the equilibrium outcome bill zk = (x , (y1 , y2 , 0)), where k = 3, along with a sufficiently high value for u3 (s) yield the equilibrium acceptance strategy a3 (zk ) = 0. By the same argument that u3 (z) ≥ u3 (s) must hold in an abstract judicial review equilibrium with a challenge-proof bill, party 3’s utility must necessarily be
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higher compared to the concrete judicial review equilibrium.
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