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Type 2 Political Corruption: Sources, Impacts, Solutions


  • Bruce Owen

    () (Stanford University)


That Congress is corrupt is no secret. Polls show that it is held in very low esteem by the public. Why is that? The effectiveness of voter control of public policy in a system of representative government depends on compatibility of representative incentives with voter preferences. Many non-salient policy issues, among them both the details of complex legislation and most policies of administrative (regulatory) agencies, escape electoral discipline because voters rationally lack relevant preferences and information. Further, voters as consumers face barriers to effective collective action, such as diffuse interests and free rider problems. Consequently, consumer interest groups able to participate in effective lobbying and campaign financing do not form. Meanwhile, political agents (politicians) are forced by the electoral system to compete for campaign resources, while effective interest groups have a demand for favorable treatment by administrative agencies. Many such agencies are controlled by Congressional committees rather than by the Executive and are accorded substantial deference by the judiciary. The result is what Lessig calls lawful and systemic “Type 2” political corruption, in which policies favorable to prevailing interest groups are supplied by committee chairs and other Members of Congress allied with compliant agencies. There is strong evidence that these policies generate welfare losses. They also contribute to occasional disasters such as the 1980s S&L Crisis and the 2008-2009 financial collapse. The absence of accountability in the administrative state is chiefly caused by the U.S. campaign finance system. Another root cause is the Supreme Court’s tacit amendment of the Constitution in Humphrey’s Executor, 295 U.S. 602 (1935), repealing the “implicit non-delegation doctrine.” This has permitting the creation of policy-making and adjudicatory agencies for whose performance the president is not responsible and whose actions the judiciary typically reviews only for procedural lapses. Humphrey’s Executor and other judicial accommodations of the administrative state reflect the outcome of a struggle between Congress and the judiciary that is plausibly modeled by positive political theorists. In this struggle the stake of the people was, and remains, unrepresented. No elected official or Article III judge is held responsible for the transfers and welfare losses of the administrative state. Both types of political corruption redistribute income from consumers to shareholders, but Type 2, especially, also reduces aggregate welfare. They do so by impairing the creation and enforcement of regulatory policies that harmonize private incentives with welfare optimization. Both corrupt redistribution and impaired efficiency can reduce the stability and security of the state, but their adverse effect on stability and security is likely to be greater in an increasingly open or global economy. Falling transport and communication costs have increased producer,consumer and labor mobility, providing many economic interests with alternatives to continued participation in U.S. economic and political affairs. The danger is that even an extended period of economic decline and instability may not be sufficient to induce fundamental reforms. Solutions do not abound to the problem of Type 2 corruption and the resulting threat to the future security of the United States. Reform of the campaign finance system has proved to be difficult to reconcile with constitutional rights. Article III judges arguably should not be asked to make policy through substantive review of agency legislation. Revival of the defunct non- delegation doctrine may be impractical. Other potential solutions seem improbable. Lessig has gone so far as to suggest as a remedy a constitutional convention under Article V. I propose what may be a more modest reform, a mechanism to identify and publicize the most serious instances of Type 2 corruption—those that lead to the largest welfare losses and that do the most harm to the poor.

Suggested Citation

  • Bruce Owen, 2012. "Type 2 Political Corruption: Sources, Impacts, Solutions," Discussion Papers 11-009, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:11-009

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    More about this item


    Corruption; collective action; principal-agent problem; interest groups; incentive compatibility; factions; political representation; political stability; security; administrative law; constitutional amendment; constitutional law; constitutional convention; non-delegation doctrine; hard look doctrine; positive political theory; welfarism; political equilibrium; administrative state; regulatory capture; campaign finance; Chevron deference; lobbying;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • Z18 - Other Special Topics - - Cultural Economics - - - Public Policy


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