A transaction cost theory of constitutional change

How does a constitutional order change over time? What are the implications of such change? Furthermore, how do answers to these questions inform de jure (“Big-C”) Constitutional design? Virtually every country today has a written Constitution. However, formal Constitutional design is only one avenue through which a constitutional order can change. There are also, e.g., changes in constitutionally relevant norms and conventions, judicial review, and executive orders. In a zero-transaction costs world, whether constitutional change occurs via one avenue or another makes no difference. However, with positive transaction costs, the implications for one avenue versus another can be significant. I propose a theory of constitutional change rooted in the transaction costs approach (Coase 1937, 1960; Buchanan 1973; Demsetz 1967; North 1990). Changes will occur whenever (a) the benefits to creating new bundles of political property rights exceed the costs of creating them and/or (b) the same is true regarding the exchange of existing bundles of those rights. When it is efficient for constitutional change to occur, it will occur via the lowest-cost avenue. Furthermore, the relative transaction costs are endogenous to the use of certain avenues vis-à-vis alternatives. Specifically, avenues that are used more frequently become relatively cheaper. This has important implications for real world Constitutional design.