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Duke Economics Working Paper #04-01

Constitutional Incompleteness and Influence Costs in
Policy Formation


Gregory Besharov

Abstract

When the government becomes involved in an issue, interested parties expend resources to influence the policy outcome. Using a common agency model of policymaking, this paper studies the conditions under which conflict over policy implies that it is optimal for a constitution to restrict the government’s involvement. When a constitution cannot restrict policies with large transfers relative to their efficiency, conflict over policy can easily lead to worse outcomes than if the government were not involved. Because constitutions cannot be complete contracts, there can be agreement over constitutions even when there is conflict over policy choices. For this reason there are conditions under which constitutional incompleteness enhances welfare and a constitutional stage leads to agreement on restrictions without a veil of ignorance.

Key Words: influence costs, common agency, constitutional incompleteness

JEL: D72, H1

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31 pages

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