Cambridge Economics Working Paper No. CWPE 0523
45 Pages Posted: 12 Aug 2005
Date Written: May 2005
Many constitutions specify procedures that allow critical decisions to be made with a different rule than day-to-day decisions. We propose a theory of constitutional rules that explains why. The theory is based on the assumption that the type of a decision can be observed, but not verified. We characterize two classes of second-best constitutions, both with clear analogues in real world constitutions: i) incentive scheme (IS) constitutions that elicit information about the type of a decision through a costly decision rule switching procedure, and ii) linking scheme (LS) constitutions that grant limited veto powers to interested parties. We explore how the relative performance of the IS and the LS constitution depends on the economic environment.
Keywords: Constitutions, social contracts, majority rules, vetoes, referenda
JEL Classification: H10, H11
Suggested Citation: Suggested Citation
Aidt, Toke Skovsgaard and Giovannoni, Francesco, Critical Decisions and Constitutional Rules (May 2005). Cambridge Economics Working Paper No. CWPE 0523. Available at SSRN: https://ssrn.com/abstract=773986 or http://dx.doi.org/10.2139/ssrn.773986