Incentive mechanisms and competition for principalship

Cardinal Richelieu imposed the Edict of Saint-Germain-en-Laye in 1641; Napoleon Bonaparte created the Conseil d’Etat (Council of State) in 1800. Between these two dates, the French Revolution and the 1790 laws are not historical accidents.

Control of power requires direct influence on administrative litigation struc­tures. Since the thirteenth century, the French monarchy had been trying to avoid the supervision of ordinary tribunals and regional parliaments. To this end, it created specialized jurisdictions, not unlike the current US agencies, and a King’s council. These agencies were sold to intendants, the power of

which was strengthened by the Edict of Saint-Germain-en-Laye and by sub­sequent decrees in October 1656 and July 1661. Their avowed aim was to exclude parliament from the structures of control. From a microeconomic point of view, this relation between the intendants and the king was rather informal; the contractual link was loose. Since offices were both sold and grounded on loyalty, moral hazard in the contract was reciprocal. On the one hand, there was no effective compatibility constraint, which was a clear disadvantage to the king. On the other hand, magistrates could be dismissed at any time. However, this simple threat could not in practice prevent rent seeking and shirking by magistrates, and some contemporary economists rejected this solution. For example, Jean Bodin is explicit about the mercan­tile threat that would endanger political life. The proposed alternative solution consisted in bringing judges under the direct and explicit authority of the king, and the revolutionary laws endorsed this process.

The lack of competition for office largely explains the inefficiency of the pre-Revolutionary system. Moreover, French parliaments were regional and they retained less power than the English parliament did. The privilege of the ruler was all the more likely to be preserved, and this remained the case after the Revolution. The situation in England was quite different: competition for rents took the form of a duopoly, consisting of the king and parliament (Ekelund and Tollison, 1980). Since the state had no special prerogatives in itself, the problem was not that of controlling it; rather, the two protagonists competed in order to obtain as many rents as possible. The outcome of this mercantile competition that had begun in the Middle Ages shows that parlia­ment was the winner, and monism and unity of jurisdiction is a consequence of this victory. Ordinary courts of justice deal with every kind of litigation, either private or quasi-private. For instance, the dissolution of the king’s Privy Council (and subsequently of the court of the Star Chamber) in 1642 gave most power to common law courts, particularly to the King’s Bench, which is a civil court of justice. In many respects, the pre-eminence of parliament will improve the agency contract. Prior to its domination, judges in charge of the administrative litigation were ‘justices of the peace’, who were not paid. They were also placed under the control of the king’s Privy Council. Their participation constraint could not but distort their decisions, which were often driven by rent seeking. Their incentive compatibility con­straint was quite inessential, because of the king’s supervision. Conversely, parliament tried to introduce financial incentives so as at least to bind the participation constraint and at best to contain strategic behaviours within the incentive compatibility constraint.

One of the dimensions of competition for power is thus the status of administrative law. We have shown how it resolves into an agency problem. How is this problem embodied in the constitutional framework?