Edward J. Lopez

Term Limits: Causes and Consequences

This paper consults multiple literatures to specify andevaluate the economic rationales for term limitation,particularly on Congress. I first consider theories that aroseto explain, among related issues, why individual states mightunilaterally self-impose term limits on their own delegationsto Congress. Next I consider two main lines of argument foruniversal limits, both of which begin with the empiricalphenomenon of high and rising congressional tenure. First,supporters of term limits argue that higher tenure biaseslegislatures toward inefficiency big government (highspending). Second, higher tenure creates inefficient (anti-competitive) conditions in the legislative election market.Term limitation would remedy these inefficiencies by virtue ofdecreasing average tenure. These claims are then evaluated inlight of the evidence amassed in the literature. Based on theliterature reviewed, this paper finds that, while term limitswill reduce average tenure, there is no evidence to suggestthat term limits will affect the underlying causes of theseinefficiencies. Further research on a more general reform,which would strike deeper at these underlying causes, isimplied.

Austrian Economics and Public Choice

In this introduction, we will first discuss the methodological affinities between the market process and public choice approaches to political economy, and then suggest that because of these affinities market process scholars should feel at home using public choice analysis to study politics, and public choice scholars should feel at home using market process analysis to study the economy. In a fundamental sense, public choice theory refers to the application of the economic way of thinking to study the political process. 1 The economic way of thinking deals with individual decision-making, and exchange relationships in a variety of social settings. Mises is arguably the first scholar to champion a unification of the social sciences by way of a common rational choice model. 2 And, Hayek should be recognized as one of the forerunners of the economics of politics with his The Road to Serfdom (1945) and constitutional political economy with his The Constitution of Liberty (1960). 3 Furthermore, Buchanan and Tullocks contribution to modern political economy touch on these themes: rational choice, catallactics or exchange, and constitutional construction. The papers in this special issue of The Review of Austrian Economics by Buchanan and Vanberg, Levy, Foldvary, and Naka point to the strong methodological and theoretical affinities between public choice and market process economists. The papers by Holcombe, Sutter, Benson, and Lopez move from the methodological and theoretical level to the realm of applied theory and empirical work.

Pass a Law, Any Law, Fast! State Legislative Responses to the Kelo Backlash

In Kelo v. City of New London, the U.S. Supreme Court left it to the states to protect property against takings for economic development. Since Kelo, thirty-seven states have enacted legislation to update their eminent domain laws. This paper is the first to theoretically and empirically analyze the factors that influence whether, in what manner, and how quickly states change their laws through new legislation. Fourteen of the thirty-seven new laws offer only weak protections against development takings. The legislative response to Kelo was responsive to measures of the backlash but only in the binary decision whether to pass any new law. The decision to enact a meaningful restriction was more a function of relevant political economy measures. States with more economic freedom, greater value of new housing construction, and less racial and income inequality are more likely to have enacted stronger restrictions, and sooner. Of the thirteen states that have not updated, Arkansas, Oklahoma and Mississippi are highly likely to do so in the future. Hawaii, Massachusetts and New York are unlikely to update at all.

The Legislator as Political Entrepreneur: Investment in Political Capital

This paper applies the standard Austrian theory of capital investment to the standard interest group model of legislator behavior. Distinguishing between reputational capital and representative capital as interdependent forms of political capital, I argue that legislator behavior (specifically roll call voting) can be explained as entrepreneurial investment in political capital under uncertainty. I discuss several examples in which this approach can potentially add predictive power regarding legislative voting.

Allocating Lobbying Resources between Collective and Private Rents

How do firms allocate their lobbying resources among their political goals? The authors approach this question using a game-theoretic model that integrates three concepts from the lobbying literature: the distinction between private and collective rents, the competition for a rent, and the impacts of political institutions. The model indicates how competition and political institutions affect lobbying expenditures and expected net returns for private and collective lobbying. The outcomes predicted differ with those of past formal models and produce the counterintuitive expectation that competition typically reduces expenditures. The authors test the models predictions by examining the lobbying decisions of sixty-two firms.

The Endowment Effect in a Public Good Experiment

Previous tests of the endowment effect have usually observed WTA-WTP disparities. Here, a public good experiment is employed. Both account framing and duration framing treatments are introduced to alter subjects’ perceived control over an initial endowment. Results do not indicate that preferences shift in a way consistent with the endowment effect.

The Problem with the Holdout Problem

Recent theoretical work has investigated the exact mechanism(s) by which the holdout problem creates inefficiency and thereby justifies eminent domain. In parallel, recent empirical work has demonstrated that state courts and legislatures either grant discretion to, or prohibit, local authorities from using eminent domain for economic development. This article extends Miceli’s (2011) strategic holdout model to incorporate political inefficiencies that may emerge when granting discretionary powers. Using eminent domain for non-efficiency-enhancing purposes substitutes for voluntary exchange, which is optimal, and attracts rent seeking by developers. Therefore, the efficiency justification for eminent domain is conditional. It depends on the relative magnitudes of the market and political sources of inefficiency. This analysis informs the efficiency consequences of court rulings, most notably Kelo v. City of New London, and the various changes in states’ laws that followed.

The Cognitive Dimension of Institutions

Having pioneered the concept in economics that institutions structure incentives, Douglass North’s later work posed the question, in turn: what structures institutions? His approach explored the role of culture, norms, and ideas and eventually drew its focus on shared mental models as the basis of institutions. An ongoing literature takes up North’s fundamental question. In this paper, we contribute to this literature by bringing together North’s mental-models approach and the work of philosopher John Searle. Searle pioneered the concept in philosophy that institutions are constitutive rules, established through collective assignment of particular status to objects in the world. Drawing upon cognitive science research on knowledge, learning, and habituation, as well as computer science research on artificial intelligence, we develop Searle’s framework to pose a simple yet general account of the cognitive origins of institutions and the implications of this link for social theory. Our framework reconciles the social science approach to institutions as regulative rules with the philosophy approach to institutions as constitutive rules. It also provides a basis for considering impediments to social interaction that arise when individuals possess conflicting normative ideas and affiliate into groups whose shared understandings appear to conflict.

Informal Norms Trump Formal Constraints: The Evolution of Fiscal Policy Institutions in the United States

Two shifts of informal rules occurred in the decades around the turn of the 20th century that continue to shape U.S. fiscal policy outcomes. Spending norms in the electorate shifted to expand the scope of the government budget to promote economic security and macroeconomic stability. Simultaneously, norms for elected office shifted to careerism. Both norms were later codified into formal rules as legislation creating entitlement programs, macroeconomic responsibility, and organizational changes to the fiscal policy process. This institutional evolution increased demand for federal expenditures while creating budgetary commons, thus imparting strong motivations to spend through deficit finance in normal times. Despite the last four decades of legislative attempts to constrain spending relative to taxes, the informal norms have trumped the formal constraints. While the empirical literature on deficits has examined the constraining effects of informal rules, this paper offers a novel treatment of shifting norms as having expansionary effects on deficits.

An Introduction to The Pursuit of Justice

This book presents new research in the study of legal systems as they perform in practice. All the chapters in this volume recognize that judges, lawyers, juries, police, and forensic and other experts, all respond to incentives. In short, the players of t he legal game a re “ordinar y persons much like the rest of us.” Thus if we want to understand why the legal system sometimes fails to perform up to our ideals and expectations we must analyze the incentives available to actors in the legal arena and the institutions that set the “rules of the game.” Of course, if we want to reform the legal system, we must change the rules of the game so that the individual incentives of judges, lawyers, juries, and other legal actors motivate them to act in the larger social interest. The eleven chapters that follow apply this framework to wrongful convictions, frivolous lawsuits, government corruption, takings, criminal sentencing, regulation of the legal services market, and many other issues.