Constitutions as Relational Contracts: Explaining Procedural Safeguards in Municipal Charters
Posted: 26 Jun 1998
Date Written: February 1996
Theory: According to transaction resource theory, constitutions are relational contracts that facilitate long-term relationships. Transaction resource theory identifies 1) three types of risk in cooperation: coordination, division, and defection; 2) contextual factors, such as increasing population size and heterogeneity, that hinder the ability of the primary parties to mitigate these risks; and 3) the ability of third-party governance to facilitate cooperation. Procedural safeguards in a constitution create incentives -- albeit at a cost -- that mitigate the risks of third-party governance in the relationship between a governor and the governed. In that relationship, the three risks take the form of instability, unresponsiveness, and inefficiency. The theory draws upon collective choice theory, bargaining theory, and the economics of information. Hypothesis: As contextual constraints increase the three risks of governance, constitutions are more likely to contain safeguards crafted to mitigate them: allocations of authority across the branches of government, as in the veto, safeguard against instability; electoral rules, as in district versus at-large elections, safeguard against unresponsiveness; and provisions for direct democracy, as in initiatives, referenda and recalls, safeguard against inefficiency. Method: Factor analysis, logistic and multiple linear regression are applied to a sample of 145 municipal charters in 1970 for cities with populations of at least 25,000 in 1960. Results: Factor analysis discriminates among procedural safeguards in municipal charters consistent with their predicted purposes in mitigating the three risks. Regression analysis reveals the interdependence of the safeguards and their heightened likelihood under conditions where contextual factors heighten the risks. Significant contextual factors include constraints on municipal competition under state laws and increasing population size and income inequality.
JEL Classification: K12
Suggested Citation: Suggested Citation