The Article presents a theory of legislative threats that pierces the fundamental concept of the legal system as a regulatory institution and more generally as a mechanism of social governance. It examines ten case studies that demonstrate the use of legislative threats in diverse areas of law and social policy. Conceptually, legislative threats encompass a variety of threats that legislators exert on firms and financial institutions, organizations and institutional shareholders, professions and industrial sectors, universities and public institutions, federal agencies, and possibly even U.S. states, according to which legislators will exercise their legislative mandate and enact adverse legislation in order to regulate the conduct or condition in question, unless the recipients of the threat alter their behavior so as to bring it in line with the legislators’ demands (Implicit in the threat is the inverse promise that the legislators will forgo the threatened legislation if, and only if the recipients of the threat comply with the demands). The Article also offers an analytic taxonomy of threats that includes explicit, implicit, and anticipatory legislative threats.
Using non-cooperative game-theory, the Article models the strategic interaction between legislators and threat-recipients and generates predictions concerning the inducement effect of legislative threats on behavior. Specifically, the analysis considers conditions that may render threats credible, including (i) legislators’ pre-game commitment; (ii) legislators’ reputation; and (iii) legislators’ emotional motivations. The analysis also examines (i) the effects of the probabilistic nature of legislative threats; (ii) the effects of imperfect and asymmetric information on the threat’s inducement effects; (iii) the effects of legislative threats on the properties of regulatory bargaining in the shadow of the threat (e.g., the magnitude of transaction costs, information revelation, and degree of contractual incompleteness); and (iv) the effects of strategic interaction within homogenous and heterogeneous as well as organized and unorganized groups on threat-induced compliance.
The Article considers the effects of legislative threats on (i) social control efficacy and (ii) democratic and constitutional legitimacy. To that end, the analysis highlights functional and institutional considerations pertaining, respectively, to the comparative capacity of legislative threats to effectively control behavior in an increasingly-complex and information-intensive social reality; and to various political, constitutional, and democratic implications arising from the use of legislative threats. Functional considerations include: (i) the asymmetric information of social planners and its effects on social control; (ii) the superiority of threat-induced self-regulation of conduct compared with “top down” regulation of conduct; (iii) the capacity of threat-induced self-regulation to accommodate rapidly-changing demands of social control; and (iv) the effects of threat-induced self-regulation on reducing the costs of law enforcement. In this respect, the analysis advances the following claim: legislative threats can be viewed as a spontaneous response to the institutionally-handicapped position of lawmakers and to the limits of the law in effectively controlling social activities; to that end, legislative threats are designed to reduce information and transaction costs of policy-making and regulatory bargaining. Institutional considerations encompass ways in which the use of legislative threats enables legislators and regulators to evade procedural safeguards, institutional constraints, and substantive controls designed to limit the power to make law and effect policy changes. These considerations are based upon the following observations: (i) using legislative threats, legislators opt-out of the “rules of the game,” disenfranchise fellow legislators, and are therefore able to effect policy changes notwithstanding a possible lack of majoritarian support; (ii) legislative threats disenfranchise the executive branch by preventing a possible presidential veto and by sidestepping the government’s role in law enforcement; (iii) legislative threats disenfranchise the states by redrawing the federal-state allocation of regulatory powers; (iv) legislative threats bypass constitutional safeguards by evading judicial review of statutes; and (v) legislative threats disenfranchise the judiciary by circumventing precedent-setting interpretation of statutes.
The Article argues that notwithstanding the superior functional capacity of legislative threats to control behavior in an increasingly-complex and information-intensive society, the institutionally-unregulated and politically-unaccountable use of implicit and explicit threats poses formidable normative challenges for the most treasured attributes of American constitutional democracy. On balance, it seems that even though the benefits of legislative threats may exceed their short-term cost (thus becoming efficient in the short-term), in the long-term the reverse is true, thus suggesting that the best domain of legislative threats consists, in fact, of an empty set. For, any increase in individual well-being and aggregate social welfare—due to the improved efficacy of social control—is inevitably outweighed by a higher commensurate decrease in well-being and social welfare, reflecting in turn the toll of violating constitutional and democratic principles; the negative impact on societal stability and the disincentive on private investment; and the consequential decline in economic growth. In turn, the discussion develops a social control scheme that is rooted in the province of legislation and is designed to ensure the socially-optimal trade-off between regulatory efficacy and the toll on democratic accountability, namely: an outcome-oriented or risk-focused, deferred-implementation, contingent sunset legislation.
Lastly, the Article argues that the exponential increase in the complexity of activities and the rapid changes in behavior across all social domains are two major sources of growth-driven social instability. Paradoxically, absent effective social control, the processes that drive well-developed market economies towards economic growth and social progress, may ultimately propel their economic decline, increase social instability, and lead to their gradual societal deterioration. Thus, the more advanced a society becomes the more demanding is the lawmakers’ role. Viewed from this perspective, the emergence of legislative threats—though institutionally illegitimate and socially unwarranted—demonstrates the limits of law and the severe limitations of lawmakers. Moreover, they underscore the growing incapacity of the legal system to deliver its pre-eminent promise: to maintain ordered liberty and to promote sound public policies. Viewed from an ever broader perspective, the widespread use of legislative threats demonstrates an increasing tendency towards (what I label) a second-order social control system, where legislators establish second-order rules designed to create the incentives necessary to induce entities and groups to adopt socially-desired rules of conduct. Inevitably, the trend toward second-order social control diminishes the traditionally-extensive role of the regulatory state, but increases the power of groups that, in shaping their regulatory environment, practically turn into islands of self-regulation.
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Date of this Version
Guy Halfteck, "Legislative Threats" (March 12, 2006). bepress Legal Series. bepress Legal Series.Working Paper 1122.