The Market for Laws: An Economic Analysis of Legislation

Abstract

Considerable insight into workings of has been gained in recent years by analyzing political behavior in same way that economists analyze market behavior. Such analysis has led to at least two (actually several) distinguishable, but often overlapping developments. One might be labeled the interest-group theory of government [1; 4; 10; 11; 12; 16], while second could be referred to as theory of legislatures [4; 5; 10; 15; 18]. The purpose of following presentation is to combine these two theoretical developments and treat legislative process as a market for laws.' Then, by simultaneously considering interest group characteristics and legislative production costs, hypotheses concerning both level of interest group pressure and magnitude of legislative output are examined. In particular, primary issues to be addressed are: 1) what determines number of interest groups formed in a state; and 2) what impact does number of interest groups have on level of legislative output. In process, developing economic approach to is extended in two directions. First, this study contains what appears to be first direct empirical examination of question of what factors lead to, or limit, aggregate interest group demands for legislation. And second, level of interest group pressure and constraints on, or costs of, legislative decision-making are considered to simultaneously determine aggregate output of legislative process. Virtually all previous studies of interest group legislation examine impact of specific interests on specific legislation.2 The following presentation is divided into five sections in addition to this introduction in order to explore issues suggested above. Section II characterizes political process as a market in order to justify theoretical hypotheses to be tested. Section III details theoretical

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