Why do institutions matter? An audience-cost theory of institutional commitment

Abstract

Institutions constrain political choices and thus commit the future path of policy. Well-designed institutions square the circle of generating commitment that is both credible and flexible. This article develops an audience-cost theory of flexible commitment that addresses some vexing questions. Where does institutional commitment come from? Why is institutional commitment feasible when policy commitment is not? How can an institution achieve credible and flexible commitment without flexibility under-mining credibility by opening the back door to defections? How does partial commitment work, or how is it possible for defections to occur in an equilibrium with credible commitment? Why do policy-makers sometimes respect institutional constraints and other times defect on institutional commitments? Why are some defections punished severely, while others are instantly forgiven and forgotten?