Approximately one-third of the world's countries have bicameral legislatures, that is, legislatures that involve two distinct chambers in their deliberations. These bicameral legislatures are not merely relics of longforgotten constitutional compromises. Although many of them have long constitutional histories, a number of newly forged constitutions, in Central Europe and Latin America in particular, also provide for dual legislative bodies. But there is surprisingly little agreement on the actual impact of bicameral institutions. As the quotations cited above suggest, bicameralism has both advocates and opponents. In this book, we address the debate and examine the effect of bicameral institutions on political outcomes.

The existence of a second chamber appears to have little effect on the relationship between the legislature and the executive. In presidential systems, the executive is elected directly and does not need the political support of the legislature to survive. In parliamentary systems, where the government needs the political support of the parliament to survive, this support is measured almost exclusively in the popularly elected lower chamber. Consequently, the relationship between legislative and executive is rarely altered directly by the existence of a second chamber.

In this chapter we present a short recapitulation of our arguments and findings. We began with a review of the historical and geographic dimensions of bicameralism. We pointed out that bicameral institutions are protean and, like the ancient Greek god Proteus, change form. These different forms are accompanied by different analyses and justifications for such institutions. We know that our unscripted excursion in time and space impressed the reader with the variety of forms and functions.

In Part I we demonstrated that bicameral institutions can serve either functional (classes) or geographic diversity (federalism), but diversity does not require bicameral representation. Both stratified and federal societies may be represented by unicameral legislatures. From this account, we want to stress one historical point. Although currently federalism appears to be the only justification for an upper chamber's veto power, federalism was originally organized through unicameral legislatures with qualified majority or unanimity as the decision-making rule.

The institutions of bicameralism are diverse in their specifics, but they involve some form of the navette system, usually followed by some stopping rule: either conference committees, or joint sessions, or the possibility of one chamber to overrule the other. Financial legislation often elicited a different set of institutional rules. The wealth of institutional “details” in Part I may have seemed overwhelming in the beginning.

Part II aimed to organize this diversity and to demonstrate the bottom line consequences of bicameralism. We drew a series of conclusions, some of them singled out as “propositions” in Chapters 3 to 5, others simply discussed in the text. Here we recapitulate briefly.

The Cambridge series on the Political Economy of Institutions and Decisions is built around attempts to answer two central questions: How do institutions evolve in response to individual incentives, strategies, and choices, and how do institutions affect the performance of political and economic systems? The scope of the series is comparative and historical rather than international or specifically American, and the focus is positive rather than normative.

Tsebelis and Money make a path breaking contribution to the “transactions benefits” theory of political institutions, which holds that a role of institutions is to prevent some collective choices from arising, or otherwise limit the number of enforceable policy outcomes. By doing so, institutions can provide outcomes or opportunities for transacting that improve on the status quo, and that would not happen in their absence. The intuition of Tsebelis and Money's work is that outcomes in a bicameral legislature are both political and efficient. By the latter they describe a form of stability; namely, the bicameral outcome has to be overturned by two majorities, whereas outcomes in either unicameral legislature of which the bicameral one is composed are more prone to being overturned, more prone to cycling, and thus less likely to produce an outcome and to remain at the status quo. Politics is also always likely to be involved no matter what the second chamber does, whether it contributes information or expertise or represents the preferences of more and different people. When different preferences are involved, bicameralism can frustrate several tyrannies: of the majority (by supplying some minority a veto), of the minority (by involving more nearly 50 percent in outcomes), of colluders, or of agenda setters.

In the preceding chapter we argued that bicameralism stresses one dimension of conflict, the line connecting the centers of the yolks of each chamber. Here we take this finding for granted. We assume conflict along one dimension, either because there is only one policy dimension or because, on the basis of the previous argument, the two chambers are negotiating along line UL of Figure 3.6. This dimension represents the redistributive, or political, dimension of bicameralism described in Chapter 1.

In the following account we present complete and incomplete information models of bargaining. Complete information is the technical term indicating that the two players know each other's payoffs, while incomplete information indicates that some characteristic of one player is unknown to the other player.

Consider the lower house and the upper house as unified players and their ideal positions L and U on a particular bill. Along line segment LU, each house prefers a point that is closer to its own ideal point. Rubinstein (1982, 1985) developed the first bargaining model where two players divide an object between them – in this case, a dollar. One can think of the dollar as a unit segment with each player bargaining for the largest part. Our spatial representation of bargaining in legislatures is similar to the Rubinstein model; one difference is that, in the dollar model, each player is interested in obtaining the biggest possible part, while in our spatial representation, each player wants the smallest part. For reasons of mathematical convenience we will adopt the Rubinstein representation, where each player is interested in maximizing his or her share of the dollar.

The basic problem with identifying the possible outcomes of a majoritarian decision-making process, such as decisions of unicameral or bicameral legislatures, is the fact that collective preferences, unlike individual ones, are not transitive. This means that although a legislature can prefer outcome a over b, and outcome b over c, by majority rule, it is still possible for the same legislature to prefer outcome c over a. This set of preferences results in unstable decision making; any outcome may be defeated by a majority, and that outcome in turn may be defeated by yet another majority. And the process may be repeated endlessly.

For this reason, the concept of the core became a basic tool in social choice theory and cooperative game theory. The core is the set of points that cannot be defeated by the application of the decision-making rule. So the core of a unicameral institution is the set of points that cannot be defeated by majority or any other decision-making rule; the core of a bicameral legislature is the set of points that cannot be defeated by concurrent majorities in both chambers; and so forth.

For unicameral legislatures, Plott has shown that the necessary and sufficient conditions for the existence of a core are very restrictive (Plott 1967: 790). He demonstrated that in a legislature with an odd number of members, a core exists in an n-dimensional legislative space (n > 1) only when it is located on the ideal point of at least one member and the remaining even number of members are “divided into pairs whose interests are diametrically opposed.”

What difference does it make if a country has a bicameral legislature instead of a unicameral one? Our purpose in Part II is to outline a framework to answer this question and to analyze the historical and geographic diversity of bicameral institutions. Thus, the overarching research question is supplemented by more detailed investigations of the specific mechanisms of intercameral reconciliation. What difference does it make if the navette system can last for one, or two, or an infinite number of rounds, as exemplified in the procedural rules of Austria, France, and Italy, respectively? What is the effect of a conference committee at the end of the navette instead of a final decision by the upper chamber or the lower one, as exemplified in the procedural rules of Switzerland, the Netherlands, and Spain, respectively? Does it make any difference if the government introduces legislation in the lower house first, as required by many constitutions for budgetary matters? Do conference committees affect the outcomes of bicameral bargaining and, if so, how?

Our account demonstrates that bicameral institutions share features that differentiate their outcomes from unicameral ones. In addition, we show how the institutional variations of bicameralism affect relative house power, providing a series of hypotheses that can be tested systematically. Part II constitutes the theoretical foundation on which we conduct empirical analyses in subsequent chapters, so that, in the conclusions, we will be able to assess critically the arguments on bicameralism proposed by various analysts.

Figure II. 1 presents in a nutshell the problem we investigate in this part of the book. The current policy, the status quo, is indicated in the figure by the point SQ.

Some of the arguments made in this book, such as the proposition that bicameralism makes a change to the status quo more difficult than unicameralism, may seem intuitive, even trivial, to the reader. Other arguments, like the rarity of a bicameral core in more than two dimensions, or empirical evidence, such as the connection between chamber composition and length of intercameral negotiations, dispute the conventional wisdom in the literature or point legislative research in a new direction.

In this chapter we review the different theories and arguments presented in the literature with a critical eye, explaining which are sound and justified, which require restrictions or modifications, and which are false and unsupported by the evidence. Finally, we raise other methodological, theoretical, and empirical issues that merit a more sustained investigation.

The chapter is organized in three sections, ordered from the more specific and the less objectionable to the more general and controversial. The first section deals with topics and ideas that are considered intuitive or at least well known. We show how we generalize these ideas or how we restrict their domain of application. The second section demonstrates that on a series of issues, we disagree both in theory and in evidence with the existing literature. The third part discusses the research agenda generated by this book. Given that some items fall into multiple categories, there is an overlap of subject matter among the three parts.

In Chapter 3, I pointed out that in order to cooperate, resource owners must cede to each other control over some of the attributes of their resources. Since it is too costly to price every attribute, their use will be sub-optimal, and some potential gains will be forsaken as a result. Sole ownership of all of the resources involved would eliminate the deadweight loss associated with cooperation. However, sole ownership may result in yet a greater loss due to reduced specialization; if this is the case, it will not be chosen. It might appear that in the case of commodities or assets that consist of single physical entities rather than those that are more complex, sole ownership would be routinely adopted. But because most, if not all, transacted commodities have many attributes, multiple ownership of commodities may be preferred to sole ownership. In this chapter, I shall suggest sources of potential gains from multiple ownership, offer hypotheses regarding the form the division of ownership will take, and discuss the organizations that are expected to emerge to handle relations among the owners.

The physical entities I consider to be commodities or assets typically consist of many attributes, and often different subsets of asset-attributes are owned by different individuals. For instance, the economic and legal ownership of every asset subject to guarantee (or to liability) is divided between its holder and its guarantor; similarly, the ownership of every rented asset is divided between the nominal owner and the renter.

Since the publication of the first edition of this book I have continued to conduct research regarding economic organization and political economy. This work is reflected primarily in Chapters 5 and 6 of the current edition. I have also separated the discussion of divided ownership from that of the firm. The former now occupies Chapter 4, whereas in Chapter 5 I offer new thoughts on the latter. In Chapter 6 I briefly speculate on the emergence of property rights and the state.

Teaching property rights courses over the last few years has led me to discover in the first edition some errors, many ambiguities, and several instances that call for elaboration. I have attempted to correct the mistakes, clarify the exposition, and elaborate when necessary. I have also added a number of illustrations, some of which derive from new research on property rights.

I wish to thank Dean Lueck, who read the entire manuscript, for his helpful comments; my daughter Tamar, for enlivening the presentation and protecting the English language; and the Earhart Foundation for its generous financial support.

By the beginning of the twentieth century, slavery had largely disappeared. Although the institution is extinct, comparing slaves and free laborers and exploring the forces that permitted slavery to flourish under certain circumstances can shed light on present-day institutions. It is particularly illuminating with respect to the understanding of the evolution of the status of women and general policing and ownership practices.

THE SLAVE CONTRACT

Labor services, routinely exchanged in the market, are subject to contract. The typical contract for the services of a free worker transfers a rather narrow, usually short-term set of attributes from the labor owner to its buyer. Slavery, too, may be viewed as a labor contract – one, however, that gave slave owners extensive rights over their slaves. In the case of forced slavery, the contract extended over the slave's lifetime. The voluntary slave contract typically specified a shorter duration and gave the owner fewer rights over the slave than did the forced slave contract.

Forced slavery was initiated by theft – free people were captured and, as the term suggests, were forced into slavery. Voluntary slavery was the result of an explicit contract – a contract to which both parties agreed, presumably in the belief that signing the contract would be beneficial to each. In some cases voluntary slavery resulted when people who had posted themselves as loan collateral defaulted on their contract and lenders assumed ownership over them. Indentured servitude, a form of voluntary slavery, was a direct method of repaying loans.

In the slave societies of the American South and the West Indies, as well as in others, slaves consistently – albeit rarely – bought their contracts from their owners in order to redeem themselves from slavery. In these societies the law afforded owners virtually absolute rights over their slaves, only seldom granting any legal rights to the slaves themselves; consequently slaves were not legally entitled to own the property necessary for self-purchase. There was no legal barrier or authority to stand in the way of owners' retaining both slave and freedom money. Nevertheless self-purchase, whereby slaves acquired legal rights to their own labor, did occur.

As will be elaborated upon in Chapter 7, the study of property rights and of the costs of transacting can yield an explanation as to why slaves were able to buy their freedom; such explanations can be tested against the facts. The property rights model I develop in this book can provide explanations of an array of such phenomena, which standard economic theory cannot successfully address. These explanations range from identifying the reasons behind the choice between wage and piece-rate contracts to pinpointing the conditions under which charity is more efficient than profit-seeking behavior.

In the following chapter, I shall define “property rights” and introduce some of the central ideas of this book. In Chapter 2, the examination of the gasoline shortage of the 1970s illustrates the usefulness and importance of the property rights framework and familiarizes the reader with its mechanics.

In previous chapters I demonstrated the expediency of using the property rights approach to explain various aspects of such specific phenomena as gasoline price controls and slavery, and to develop a general approach to, among other things, non-market allocation, the maximizing role of restrictions on private property rights, and, in the context of farm tenancy, the choice among various forms of control. The property rights framework can be applied to other problems as well. I shall now briefly consider several of these problems, beginning with an analysis of the individuals' ability to protect themselves against losses to monopoly, proceeding to a discussion of the relationship between property rights and theft and of property rights in relation to innovation and to price information, and concluding with an exploration of property rights as they relate to wildlife.

PROTECTION AGAINST LOSSES TO MONOPOLY

Monopolies are said to result in resource misallocation, which takes two forms. The first and better-known type of misallocation arises because monopolies produce “too little,” charging prices that exceed marginal costs, whereas the second type arises in the process of creating monopolies. Would-be monopolists spend resources in order to attain monopoly positions, and such expenditures are dissipating. The magnitude of these capture costs is comparable to that of the expected profits of the monopoly. Naturally, monopolists have economic rights to whatever gains they obtain. Since monopolists' gains exceed their contributions, their gains occur, in part, at the expense of others; thus, they also seem to have the right to harm other people.

Having analyzed the causes that allow properties to be kept in the public domain, I can now address the issue of the formation of economic (though not necessarily legal) rights. It might be tempting to trace the pattern of currently existing property rights holdings to its point of origin to determine how and why it came about, yet such an effort would be futile. The ability to consume commodities, including those necessary to sustain life, implies the possession of rights over them. Once this is understood, it becomes clear that one cannot expect to discover any evidence of a pre–property rights state, since it is not possible to endow a pre–property rights state of affairs with meaning. In order to gain a toehold on the evolution of property rights, one must start with the simultaneous emergence of life and property rights and then consider a world where some rights are already in place. One must resort to something less dramatic than, but similar to, the physicist's big-bang theory. Once some rights are already in existence, it is possible to explore their evolution with respect to changes in economic conditions and legal constraints.

Inferences about the creation of property rights may be drawn by studying instances of anarchy or violent upheaval that necessitated radical acts of rights redefinition. A spectacular example is that of the California gold rush, described and analyzed in detail by Umbeck (1977).

People have discretion over how to delineate rights, and as part of their maximization effort they do so to whatever degree they desire. Rights are never perfectly delineated, however, because the fact that commodities are not uniform and are expensive to measure makes perfect delineation prohibitively costly. Nevertheless, since people do what they deem “best,” rights may be said to be always well delineated.

Those properties that people choose not to delineate are in the public domain. Such properties include much of the world's oceans; they also include the cool air in air-conditioned shopping malls, which is not charged for on the margin. Properties in the public domain can be augmented or diminished. As the values of commodities and of commodity attributes change, and as the costs of delineation and of protection change, people's decisions regarding what to leave in, what to relinquish, and what to reclaim from the public domain change correspondingly.

The public domain is ubiquitous; innumerable commodity attributes are placed in it. Any service not fully charged for on the margin is at least partly relinquished to the public domain. Owners could charge for such services, but the extra returns often do not justify the extra costs. For instance, concert-hall owners relinquish to the public domain the differential in valuation among equally priced seats. When the value of concert-hall seats falls – which might happen when the hall is used by a local choir rather than a famous opera star – seats are expected to be priced in lesser detail.

The property rights approach to the study of economics has been promoted by market-oriented economists, who have used it occasionally to demonstrate the superiority of the market. Contrary to the perception that property rights tools may best be used to analyze the market economy, where allocation is performed largely if not entirely by prices, these tools seem to be uniquely well suited to analyzing resource allocation in non-market settings. Under the Walrasian approach, where rights are perfectly defined, nothing is lost by quickly dispensing with the topic of property rights, for there is little to say about them within that model, where prices determine everything. Indeed, the Walrasian model may provide satisfactory answers to many problems in capitalist economies, where prices play a vital role in economic life.

Those economists who have contributed most to the study of property rights tend to be strong advocates of unregulated markets. They contend that people and the economy thrive when left to their own devices, and that government intervention tends to reduce wealth. In the market, the argument goes, prices move resources to their highest-value uses; when prices are not given the opportunity to perform their function, misallocation results. Government intervention is deemed acceptable in such areas as national defense, police, the courts, and the money supply; such intervention is said to be desirable only inasmuch as it facilitates the functioning of markets. Despite the prevalence of this reasoning, government regulations cannot be dismissed on a priori grounds.