TIPOS DE EVENTOS

In period 0, citizens choose their constitution behind the “veil of ignorance”. At this stage, they know neither their later position nor their private interests. They know only the structure of the game and the probability distributions of all relevant variables.8 _{Citizens can separate the legislature from the executive (then the resulting}

laws are described by proposition 14) or install a “single ruler”. Such a single ruler is

8_{This concept of a veil that takes away from citizens the possibility to decide on the basis of their}

private interests, and makes them decide in the social interest, goes back to Rawls [74] and is widely used in political philosophy and in formal political economy.

an executive that is not constrained and will not constrain himself by laws but decides each single case according to his private interests.9

Citizens choose to separate the legislature from the executive if and only if this maximizes their expected social welfare. For given distributions of s, λex, and g and a given parameter γ, we can calculate expected social welfare under both constitu- tions and compare them. But, even for the uniform distribution, calculations become quite cumbersome. Therefore, we relegate the formal analysis to the appendix 2.5 and analyze the important features referring to figure 2.1. Notice that the regime of sep-

Figure 2.1: Choice of the Constitution Socially Optimal Law

prohibit gl Λ,S(0) 0 executive decides gu Λ,S(0) enforce _HH g©© Separated Legislature (γ >0) prohibit gl Λ,S(γ) executive decides 0 gu Λ,S(γ) enforce _HH g©© Single Ruler 0 executive decides _HH g©©

Which Constitution is better?

Separation better

0

Both constitutions equally good Single Ruler better Separation better H H g©©

aration of powers as well as a system with a single ruler may be optimal under certain circumstances. Which constitution is better depends crucially on the range [−G, G] of possible general project characteristics. We can state

9_{Even a single ruler might enact some laws in order to regulate inter-citizen relationships or in}

order to stimulate investment of citizens by committing himself not to expropriate their gains ex post. These kind of laws are not the focus of this paper.

Proposition 15 Separation of powers is not always optimal. The range of general project features [−G, G] influences the constitutional choice. Consider γ >0. Then

• for G < gu

Λ,S(γ) both constitutions do equally well.

• for gu

Λ,S(γ)< G < guΛ,S(0) the single ruler is more attractive.

• for G > gu

Λ,S(0) separation of powers becomes more attractive with an increasing G.

This result follows directly from figure 2.1. Intuitively, an independent legislature, that is, a regime of separation of powers, is particularly valuable if there are a number of categories where the general feature gives already a clear signal whether it contains beneficial projects or not. Then, the legislature can get quite reliable information about the nature of a project. When the range of possible general project characteristics is smaller, this signal is more likely to be dominated by the special project characteristics. Therefore, the relative attractiveness of a system with a single ruler increases. For an intermediate range of G a constitution with a single ruler is socially optimal. This results from the bias of the legislature which distorts the law under a system of separa- tion of powers. This distortion is felt at the thresholds of the law (for an intermediate range ofG).

Which constitution is better also depends on the absolute value of the bias of the legislatureγ. Separation of powers is optimal for instance when γ is close to zero (and if G is not too small). Then, the laws under the separation of powers are arbitrarily close to the socially optimal law and dominate the outcome under a single ruler.

Proposition 16 The expected welfare under a single ruler increases relative to the expected welfare under separation of powers if the absolute value of the bias of the legislatureγ becomes larger. For γ = 0 separation of powers is always optimal, and for

|γ| →G a system with a single ruler yields a higher expected welfare.

The proof is in appendix 2.5. For an intuitive explanation, please refer to proposition 14 and to figure 2.1. An increase in the absolute value ofγ shifts the thresholdsgl

gu

Λ,S(γ) away from their socially optimal values. The larger the bias of the legislature, the more is the law distorted with respect to the social optimal law. That is, the range of general project characteristics g where, forγ >0, projects are enforced which should be left for the executive to decide (or, for γ <0, projects are prohibited which the executive should decide), becomes larger. This makes the regime of a single ruler more attractive.

The constitutional choice is also influenced by the range [−Λ,Λ] of possible private interests of the executive and the range [−S, S] of special project characteristics:

Proposition 17 If the range[−Λ,Λ]of private interests of the executive is sufficiently large and/or the range [−S, S] of special project characteristics is sufficiently small separation of powers leads to higher expected welfare in comparison with a single ruler.

The proof is in appendix 2.5. Intuitively, for large Λ, the private interests of the execu- tive dominate its decision and its private information about sdoes hardly influence its choice. Similarly, a small s means that the executive has few additional information on the projects value. If the executive would decide differently from the legislature, the reason is most likely its private interests and not its better information on s.

Thus, a regime of separation of powers is not always optimal. In particular, a system with a single ruler becomes more attractive if the bias of the legislature is large, general project characteristics G are not too widely spread and special project characteristics S are spread in a large range. Also, the single ruler becomes a better constitutional choice if the range of possible private interests of the executive is small.