Designing Checks and Balances

Abstract

Essential to the Madisonian conception of checks and balances is the division of policy-making authority among multiple actors such that each can veto proposed changes in policy. We use a mechanism design approach to analyze checks and balances institutions. We show that checks and balances institutions in which the most preferred policy of the more moderate player is the unique equilibrium outcome are the only checks and balances institutions that are strategy-proof, efficient, and responsive. Our analysis facilitates a comprehensive evaluation of checks and balances institutions, and our results can serve as a normative benchmark to assess any such institution, regardless of its specific design. We illustrate the applicability of our normative benchmark within the context of constitutional review, a crucial pillar of established democracies, and, increasingly, of developing democracies.

Keywords: institutional design, checks and balances, veto power, constitutional review

JEL Classification: D72