The Constraining, Liberating, and Informational Effects of Nonbinding Law

We show that nonbinding law can have a constraining effect on political leaders, because legal compliance is a costly signal to imperfectly informed voters that the leader is unbiased. Moreover, nonbinding law can also have a liberating effect, enabling some leaders to take action when they otherwis...

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Bibliographic Details
Published in:Journal of law, economics, & organization economics, & organization, 2015-05, Vol.31 (2), p.320-346
Main Authors: Fox, Justin, Stephenson, Matthew C.
Format: Article
Language:English
Subjects:
Compliance
Legal studies
Moral hazard
Political behavior
Tradeoff analysis
Voter behavior
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Summary:We show that nonbinding law can have a constraining effect on political leaders, because legal compliance is a costly signal to imperfectly informed voters that the leader is unbiased. Moreover, nonbinding law can also have a liberating effect, enabling some leaders to take action when they otherwise would have done nothing. In addition, we illustrate how voters may face a trade-off between the legal standard that induces optimal behavior of the current leader (i.e., that most effectively addresses the moral hazard problem) and the legal standard that optimizes selection of future leaders (i.e., that most effectively addresses the adverse selection problem). We discuss a range of positive and normative implications that follow from our analysis.
ISSN:8756-6222
1465-7341
DOI:10.1093/jleo/ewu013