Optimal checks and balances under policy uncertainty

Gratton, Gabriele; Morelli, Massimo

Political checks and balances are debated desiderata in the evaluation of democratic systems. We suggest a framework where the pros and cons of checks and balances are, respectively, the reduction of type-I errors and the increase of type-II errors in policy decision making. Political checks and balances are less desirable for intermediate levels of competence of the political class when accountability is high. In policy areas where the effects of reforms are harder to evaluate and accountability is low, political checks and balances are always desirable. Positive constitutional design reveals the possibility of constitutional traps, with politicians choosing less desirable regimes.