Abstract

This essay offers a new defense of judicial review of the Constitution's federal structure. It begins by showing that federalism is best understood not as a system that creates rights for states but one that provides benefits for the citizens of the nation. It achieves this goal by distributing powers best exercised at the national level to the federal government and those best exercised more locally to the states. The benefits of this distribution include catering to diverse preferences of citizens in different states and creating horizontal competition among the states for efficient provision of government services. Because these benefits flow to citizens rather than to government officials, the structure of federalism creates a classic principal-agent problem. We show in the paper that citizens will be poor monitors of these officials, because they are rationally ignorant of politics, particularly structural issues, like federalism, and because they are an extremely large group, giving them incentives to free ride on the monitoring of others. We then show that state officials have incentives to take advantage of this lax monitoring and themselves undermine federalism. State officials may surrender their powers and acquiesce in congressional overreaching in the areas of the Commerce Clause, section 5 of the Fourteenth Amendment, the spending power and sovereign immunity. To give just one example, we show that while horizontal competition among the states may benefit citizens, state officials may benefit from avoiding competition and seeking a cartel sustained by a federal regulation. For such reasons, the political process cannot be counted upon to protect the proper distribution of powers, because state officials as well as federal officials have few incentives for its preservation. Because our theory of federalism is not a states' rights theory, we also believe that judicial review is appropriate when states usurp federal power or otherwise undermine federalism. State officials have strong incentives to undermine structural federalism in such areas as the dormant Commerce Clause and the Compact Clause. We thus call for more judicial enforcement in some of these areas as well. Ours is thus a unified theory of judicial review that justifies judicial enforcement of federalism against both federal and state governments. We end by sketching the beginnings of a theory explaining why the federal judiciary, given its structure and incentives, will improve the enforcement of this most essential constitutional distribution of power.

Date of this Version

August 2004

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