Our view of legislative–executive relations, similar to the studies cited in Chapter 2, attempts to motivate delegation from the ground up as a rational institutional choice made by utility-maximizing legislators. In constructing our framework, we draw an analogy with recent insights from the economic theory of the firm. Particularly of interest is work on the subject of transaction cost economics and vertical integration – that is, a firm's make-or-buy decision. We argue that Congress has a similar make-or-buy decision when making public policy; it can specify the details of legislation itself or it can subcontract them to executive agencies. Furthermore, the central concepts of transaction cost economics can help us construct a theory of political delegation, so that we can make predictions about the location of policy making in a separation of powers system.

Our objective in this exercise is not simply to impose transaction cost analysis on a political context but to use its key notions as organizing principles. In particular, the concepts of boundaries, incomplete contracts, and the holdup problem shed new light on issues of legislative organization and congressional–executive relations. The committee system and delegation both have their strengths and weaknesses, and the transaction costs associated with policy production in either mode will vary from case to case.