Insuring Rents

28 Pages Posted: 23 May 2019

See all articles by Bryan Cutsinger

Bryan Cutsinger

Angelo State University - Accounting, Economics and Finance Department; Texas Tech University - Free Market Institute

Date Written: April 20, 2019

Abstract

Economists have long recognized the need for durability-enhancing mechanisms to facilitate political exchange, but the focus has been almost entirely on mechanisms that raise the cost of reneging on bargains once they have been struck. What happens if these mechanisms fail? This paper argues that politicians have an incentive to establish an insurance-like mechanism that indemnifies interest groups whose legislatively-created benefits have been reduced. I consider the role of the Department of Justice's settlement authority in facilitating this type of transfer, and illustrate my argument by examining two recent settlements involving Citigroup and Bank of America. These settlements are notable not only because they involved the allocation of money to third-party groups who were not directly harmed by the alleged violations of federal law, but because both corporations were required to donate millions of dollars to housing counseling organizations whose subsidies Congress reduced following the 2010 midterm elections.

Keywords: Durability, Interest Groups, Political Exchange, Political Property Rights, Department of Justice, Settlement Authority

JEL Classification: D72, H11, P16

Suggested Citation

Cutsinger, Bryan, Insuring Rents (April 20, 2019). Available at SSRN: https://ssrn.com/abstract=3375405 or http://dx.doi.org/10.2139/ssrn.3375405

Bryan Cutsinger (Contact Author)

Angelo State University - Accounting, Economics and Finance Department ( email )

San Angelo, TX 76909
United States

Texas Tech University - Free Market Institute

Box 45059
Lubbock, TX 79409-5059
United States

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