Deliberation and Decision

Economics, Constitutional Theory and Deliberative Democracy

Anne van Aaken, Christian List

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351945493
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Deliberation and Decision explores ways of bridging the gap between two rival approaches to theorizing about democratic institutions: constitutional economics on the one hand and deliberative democracy on the other. The two approaches offer very different accounts of the functioning and legitimacy of democratic institutions. Although both highlight the importance of democratic consent, their accounts of such consent could hardly be more different. Constitutional economics models individuals as self-interested rational utility maximizers and uses economic efficiency criteria such as incentive compatibility for evaluating institutions. Deliberative democracy models individuals as communicating subjects capable of engaging in democratic discourse. The two approaches are disjointed not only in terms of their assumptions and methodology but also in terms of the communication - or lack thereof - between their respective communities of researchers. This book provides a comprehensive overview of the recent debate between the two approaches and makes new and original contributions to that debate.

Part I
Deliberation and Constitutional Theory

Chapter 1
Deliberative Institutional Economics, or Does Homo Oeconomicus Argue?¹A Proposal for Combining New Institutional Economics with Discourse Theory

Anne van Aaken

Abstract

Institutional Economics and Discourse Theory stand unconnected to each other, although they are both theories concerning the legitimacy of institutions (normative) and the functioning and effectiveness of institutions (positive). Both use as theoretical constructions rational individuals and the concept of consensus for legitimacy. Discourse theory emphasizes the conditions of a legitimate consensus. It could thus enable institutional economics to escape the infinite regress of judging a consensus legitimate Institutional economics uses an empirically testable social science paradigm (rational choice) of explaining and predicting the functioning of institutions. The paper outlines a theoretical synthesis of the two theories by finding points in common and possibilities of fruitful combinations concerning the problems of legitimacy, institutional design and effectiveness of legal norms.

Introduction

Individuals may make collective decisions through a number of mechanisms such as deliberation, negotiation and choice,² which may in turn be judged by different criteria – efficiency, fairness, acceptance, and legitimacy. The theoretical thinking on deliberative democracy is normally subsumed under Discourse Theory,³ where arguing and/or deliberation are regarded as means of achieving social coordination and legitimacy. This is in contrast to Institutional and Constitutional Economics, which emphasizes bargaining and, particularly, the rational decision following it. The underlying approach is not primarily political or ideological but derives from different assumptions regarding the circumstances in which people act for what reasons and in what manner. It therefore leads to different methods. In the methodological discussion that is of interest here, homo oeconomicus occupies a central position. Does he argue? And if so, what is the effect on his preference, cognition⁴ and resulting decisions? How do the conditions for decision-making (normative and positive) affect the result, its acceptance and/or legitimacy, and the legitimacy of rules and laws?

The aim of this article is to find points of contact, and features that are common to both Discourse Theory and the New Institutional/Constitutional Economics.⁵ These could encourage further research, particularly into the shaping of decision-making processes such as legal or democratic procedures, and including business organization theory.⁶ Court hearings, for example, are built around a deliberative process that not only gives the parties the right to argue their case but also calls for deliberation and impartiality on the part of the judge and requires the court to substantiate its findings (principle of fair trial). These institutional facilities function in conditions that come close to those formulated by Discourse Theory and help to make legal rulings more legitimate and, thus, better accepted. Similar structures can be found in administrative proceedings.

A paradigmatic representation of the two outlooks is followed by a search for points of contact, with particular reference to the contribution Discourse Theory can make to the New Institutional Economics, and an attempt at theoretical synthesis. I shall then deal with the explicative and normative content of what I call 'Deliberative Institutional Economics'. My thesis is that it can better explain existing institutions. 3 also suggest that those thinking in terms of normative Institutional Economics can better assess institutional alternatives if their analysis allows for the discursive conditions that affect not only cognition but also the preferences of individuals involved in processes of social coordination such as court hearings, democratic procedures, and administrative action.⁷ Deliberative procedures are de facto already incorporated in most of the institutions governing the three state powers.⁸

Several implications of incorporating deliberation into economics will therefore be discussed, i.e. (1) the possibility to reach consensus through deliberation (positive); (2) the legitimacy of such a consensus (positive and normative); (3) the utility to be derived from the deliberation process as such (process versus decision utility) (positive), and (4) the effect on the individuals' interest in rule-following as a result of acceptance of the rule-making process (positive).

New Institutional Economics

New Institutional Economics is indebted to methodological individualism in its positive analysis and assumes that a person having (bounded⁹) rationality and constant preferences will seek to maximize (individual) utility when making decisions in conditions of scarcity. Rather than relying on empirical behavioral analyses, it uses what is known as the REMM¹⁰ hypothesis to derive adjustment reactions expected after institutional changes. Important factors that are presupposed are stable preferences, and a well-defined utility function of human beings whose actions are therefore result-oriented. Normally, the concept of utility in economics and decision theory nowadays is defined as a positivist version of desirability, making it a theoretical construct with a concrete content derived from 'revealed preferences'.¹1 The model, no longer limited to economic issues in a narrower sense, now also serves to analyze political and general institutional contexts and does not question the presupposed constant preferences and their origin or ethical assessment. The underlying concept is that of the responsible citizen who is aware of his interests and preferences.¹² The strict analytical separation between stable preferences and restrictions thus permits the empirical examination of behavioral changes with no need to discuss a change of preferences. In short, a formal concept of rationality¹³ assumes a system of given subjective preferences and neglects both their origin and content.¹⁴

Reaching Consensus

Starting from given preferences, the New Institutional (and particularly Constitutional) Economics deals with the effectiveness and legitimacy of institutions and, through a suitable blend of coordination procedures performed by the state and the market, looks for rules producing results that best suit these preferences. It normally¹⁵ proposes to use consensus as a criterion for assessing the substantive Tightness of institutions,¹⁶ a concept with a procedural understanding of rationality¹⁷ derived primarily from Constitutional Economics, on which we may therefore focus in the following.

In seeking consensus, an individual weighs advantages and disadvantages (not necessarily limited to financial and material ones), an advantage being anything he regards as such. It is assumed that nobody would accept a worsening of his personal situation caused by rules, and that rules thought to improve it are considered efficient if and because they can produce unanimity. There is an assumed harmony of individual utility maximization and supra-individual substantive Tightness.¹⁸ Economics in this connection is concerned with individual decision-making and disregards the possibility of previous deliberation and institutions established for this purpose.

There are, however, approaches in Constitutional Economics that no longer assume given preferences at a constitutional level.¹⁹ Vanberg and Buchanan²⁰ (analytically) single out theories and interests as components of constitutional preferences, the former being a cognitive and factual element in the (subjective) forecast of how different rules affect results, the latter involving the subjective assessment of results expected from rules, making it a pure value judgment.²¹ The two components may cause differences of opinion and prevent agreement. To avoid disagreement between individuals and bring the theory components closer together, one can provide more information (e.g. from experts) or have a discourse.²² The interest components of preferences are thought to remain constant, however, which would exclude modification through discourse, and the question of why or due to what processes the interest component of people might change is disregarded. This gap can be filled by deliberative theories emphasizing discourse as a means of considering and exchanging arguments to reach agreement.²³

Legitimacy of Consensus

In Constitutional Economics, rules are assumed to be legitimate if rational individuals seeking to maximize utility (can) unanimously agree to them. Constitutional Economics in particular opposes the 'maximization concept' of welfare economics^ by saying that, in contrast to approaches taken by welfare economics (and utilitarianism), efficiency cannot be defined regardless of individual choices.²⁵ This is because Constitutional Economics assumes that preferences and their intensities cannot be observed and thus are not comparable on an interpersonal basis. 'Objectivistic' approaches in welfare economics are therefore denied. For the comparison of given preferences relating to the desirability of certain goods or rules there is no superordinate standard enabling the definition of a social welfare function which could then be optimized.²⁶ This means that 'the legitimacy of ethics ... in theory requires the consent of those involved to the rules ... ²⁷ A normative effect can only come from the intentions of those concerned'.²⁸

Other issues discussed include the voluntary character of the agreement and the type of exchange taking place, in other words, the conditions for the validity of the consensus. Here we find differences in Constitutional Economics, with Brennan and Buchanan considering an agreement non-legitimate only if it was 'extracted by force or under conditions of total duplicity by one of the parties'.²⁹ They are satisfied if 'individuals are observed to be responding freely within the minimally required conditions of mutual tolerance and respect...'.³⁰ No further elaboration is, however, given on the minimal conditions of tolerance and respect. Inequalities concerning income or the ability to express oneself are explicitly neglected, as is the issue of whether the situation prevailing before the conclusion of the contract (the status quo) was fair.³¹

Vanberg, by contrast, deals more thoroughly with the voluntary character and looks at the type of restrictions under which the exchange or consensus take place because in order to specify what is meant by "voluntary choice" and "voluntary exchange '... one has to somehow qualify the conditions under which the respective choices are made'.³² The question then is how to define coercion.³³ Although coercion might already be assumed if individual choice comes up against limiting factors (budgetary or physical), such restrictions are simple facts of life because the phenomenon of scarcity will invariably force individuals to abandon one alternative if they choose the other (opportunity costs). Such a definition is useless, as is the criterion of coercion through 'natural conditions' or human action, because the two are inevitably linked. An owner of water in the desert withholding this vital resource from another person may be acting exactly as someone in our part of the world, but it would still not be the same.

Another criterion Vanberg discusses is the infringement of absolute rights. This would represent coercion and thus make the consensus involuntary. The next question would be what exactly 'rights' means, and might lead one to consider two types: one a class of pre-positive rights applied regardless of the ones defined i...