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Monday, August 25, 2008

Laboratories of Democracy: Some questions for skeptics

I ignore this blog for just a couple of weeks, and what do I find gets posted in my absence? Brian Galle's and Joseph Leahy's working paper defending Susan Rose-Ackerman's thesis that state politicians do not innovate because they are risk-averse and seek to free-ride off of each other's innovations. Being this blog's resident federalism fan, I have mixed feelings about their paper. On one hand, the paper is admittedly an outstanding contribution, confirming my suspicion that all of the best work on federalism is done by tax and environmental law folks: Galle, being a tax guy, predictably integrated the best economics (e.g., Besley & Coate, Breton, etc), while all of the constitutional law folks are still parsing the punctuation of some squishy preemption opus from the SCOTUS.

On the other hand, sometimes I think that federalism gets a lot of unfair knocks from scholars who compare federal regimes to some idealized "socially optimal" world and, unsurprisingly, find that federalism falls short of their imaginary ideal. Galle and Leahy, I think, fall prey to this tendency when they conclude that "state and local governments ... are unlikely to innovate in all instances at the optimal social level" (page 7). To which I respond: So what? Neither will Congress.

In particular, why do Galle & Leahy assume that federal politicians are immune from the "information externality" that allegedly afflicts non-federal politicians? Rose-Ackerman's claim is that non-federal politicians will not innovate because they are all hanging back like penguins at the edge of a glacier, waiting for some hapless penguin to dive in first and reveal the presence of some lurking predator below. No one wants to be the first mover when they can reap the benefits of other first mover's experiment by being a copycat -- make a big splash, catch some fish -- without the risk of being eaten if the innovation flops.

But why is not Congress just another gaggle of penguins, so far as the information externality is concerned? Federal politicians act as individuals when they innovate, staking out areas of policy expertise through hearings and bills, trying to win visibility on an issue so that they can run (for instance) for President. Think of Estes Kefauver and organized crime, Edward Muskie and environmental law, Abe Ribicoff and auto safety. The information externality afflicts these politicians every bit as much as it afflicts governors. If it turns out, for instance, that environmental regulation is a bust with voters, then the Senator who championed it will look bad, making it risky for any federal politician to get out in front on the issue. If, by contrast, environmental regulation is successful, then it will be easy enough for rivals to jump on the bandwagon after success is proven in the field.

So how exactly will federalization of any issue ever internalize any information externality? Why are not members of Congress, governors, mayors, etc., all a bunch of penguins -- some of whom are less risk-averse than others and jump off the ice berg first, in hopes of catching more fish?

Posted by Rick Hills on August 25, 2008 at 11:11 AM in Constitutional thoughts | Permalink

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Comments

Rick:

Sorry I did not see this earlier. As a roving VAP, I don't hit the blogs during the summer as frequently as I'd like (I mainly just pack up and unpack my home and family in different cities).

Yet, not to worry....Brian responded as well or better than I could (which is not unusual; indeed, it's the norm). But definitely let us save this issue for, and revisit it, another day....

Joe

Posted by: Joe Leahy | Oct 24, 2008 4:41:57 PM

Thanks, Rick, for the kind words. I don't disagree much with your point, although if I were a killer whale, I would wait for the second or third penguin. The first is likely to be the hungriest, and therefore thinnest.

We do admit in the paper we're only giving you (and anyone else who happens to read) half the analysis -- all we analyze is whether state and local governments optimize innovation, not whether they in fact underperform Congress. We promise an analysis of Congress (along with other rivals, such as contracting with private industry) in a sequel. I realize that's a bit of a cop-out, but we were already up against the 30,000-word limit...

Provisionally, I'd agree with you that the important question for Congress' performance will be the incentives of various institutional players. Centralized government should perform better than states under perfect agency (for readers who haven't read the article yet, that is because there is a smaller positive externality from experiments), but obviously that's not a very interesting framework. Probably the ideal strategy, if you're a penguin or a congressperson, is to give someone else a push into the water...so delegate risk-taking to someone else, give them incentives to plunge, and claim credit when it all works out. If that's a plausible story, and the feds can do it better than can states, then we have something interesting. So stay tuned.

Posted by: BDG | Aug 25, 2008 6:20:35 PM

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