Transaction costs, discretion, and policy control

This research evaluates the utility of applying the transaction cost approach to questions of political control over bureaucratic policy. The transaction cost approach to political decision-making generates two predictions that, if accurate, add considerably to the study of bureaucratic policymaking. First, the theory predicts that a principal’s willingness to influence bureaucratic policy will decrease as the transaction costs of doing so increase. This suggests that principals can obtain strategic advantages in battles over bureaucratic policy by selectively increasing the transaction costs of policy control to political rivals. Second, a principal may prefer that the bureaucracy refrain from any new policy action when the transaction costs of policy control become too expensive during periods of divided government. In its extreme form, such a pattern would result in bureaucratic gridlock. I empirically test both predictions using a new dataset of all federal regulations that underwent White House review between 1981 and 2005. The results strongly support the model. The President is significantly less willing to influence federal regulatory policy when the transaction costs of policy control are increased by the presence of either statutory or judicial deadlines. Perhaps even more significantly, split-party control of Congress reduces the number of the most important regulations on the federal agenda by 33 percent