Rule Creation in a Political Hierarchy

Principal-agent relations are replete in politics; politicians are agents of electorates, bureaucrats are agents of executives, lower courts are agents of upper courts, and much more. Commonly, principals are modeled as the rule-making body and agents as the rule-implementing body. However, principals often delegate the authority to make the rules themselves to their agents. The relationship between the lower federal courts and the Supreme Court is one such example; a considerable portion of the law (rules) is made in the lower federal courts with the Supreme Court serving primarily as the overseer of those lower courts’ decisions. In this article, we develop and test a principal-agent model of law (rule) creation in a judicial hierarchy. The model yields new insights about the relationship among various features of the judicial hierarchy that run against many existing perceptions. For example, we find a non-monotonic relationship between the divergence in upper and lower court preferences over rules and the likelihood of review and reversal by the Supreme Court. The empirical evidence supports these derived relationships. Wider implications for the principal-agent literature are also discussed.