“Learning from Corporate Governance: First Conceptualization of a Liability for Political Decision-Making”, 2023-07-27 ():
The institution of liability serves to mitigate the lack of care in almost all areas, whether private or business. However, we have not yet found such an institution in political decision-making. Surprisingly, the literature has not discussed a specific institution that subjects political actors who fail to exercise due diligence in their decision-making regarding personal liability.
Hence, this paper aims to fill this gap and derive the necessity of internalizing the negative effects resulting from the imperfections of the market for political services in general and the democratic process, particularly by a liability rule. To design the new institution, we draw on the findings of corporate governance, combining economic thinking in incentives and legal knowledge expressed in the law of the corporation.
In this respect, this paper is the first to make a concrete proposal for political liability accompanied by a political judgment rule. However, it is important to emphasize that the aim is not to punish a wrong decision but to provide strong incentives to prevent it ex ante. Political liability must be understood as a process-oriented institution that considers uncertainty and decision-making complexities.
By proposing and analyzing this new institution, this work contributes to a broader discussion of incentive structures in the political process of modern democracies and shows how the political sphere can learn from the corporate world.
…Given the features of the political processes in parliamentary democracies, it is surprising that politicians, unlike many other actors, are not personally liable for their decisions. To fill this gap in the literature, this paper proposes a concrete rule that subjects politicians to personal liability if they cannot present certain requirements for rational decision-making, especially documentation of their cost-benefit analysis, including the consideration of risks. However, we should be aware that most human, corporate, and political decisions are characterized by uncertainty (1921; von 1998 [194975ya]) and incomplete information; therefore, universal liability would lead to disincentives for risk-neutral agents. To solve this problem, the law of the corporation must know the institution of business judgment rules. We borrow from this field and develop a conceptual framework for a politician’s liability and the corresponding political judgment rule. To this end, we build our proposal on a theoretical framework that includes new institutional economics and an economic analysis of (corporate) law to show how the political sphere can learn from corporate governance. While parts of the literature study the influence of politics on modern corporations and their governance through a political economic analysis (eg. 2018) and examine from which institutions of public governance companies can learn (eg. 2005, 2007), we discuss the opposite.
…Because of the problems discussed, a political judgment rule de lege ferenda could be formulated as follows:
No dereliction of duties will be given in those instances in which the political actor, in taking a political decision, was within their rights to reasonably assume that they were acting on the basis of adequate information which is presented by a transparent and structured decision process.