Shreyas Sinha: The Costs of Administrative Rulemaking and the Calculus of Consent

Introduction

The ambit and scope of delegated or subordinate legislation have been the subject of debate and controversy in administrative law. There are multiple perspectives that provide strong criticisms and defences of administrative rulemaking in common law jurisdictions. In this piece, I argue that that the constitutional economics framework developed by James Buchanan and Gordon Tullock, in their seminal work The Calculus of Consent: Logical Foundations of Constitutional Democracy, provides administrative law practitioners and academics with a sophisticated analytical framework to critique rulemaking processes (such as delegated legislation) and derive valuable normative inferences.

In this article, I proceed by: first, elaborating upon the Buchanan-Tullock framework; and second, applying the framework to the subordinate legislation provisions of the newly-released draft Indian Telecommunications Bill, 2022 (‘the Bill’) as an illustrative case to demonstrate how the framework serves as a useful tool to assess rulemaking by administrative authorities. The central point of this piece is to demonstrate the usefulness of this constitutional economics framework to a global administrative law audience and provide them with a normative vocabulary.

The Buchanan-Tullock Framework

The Buchanan-Tullock framework is a tool to analyse and critique rule-making processes (such as administrative rule-making) from a costs perspective. This constitutional economics framework is particularly useful for analysing administrative rulemaking as it attempts to explain the working properties of alternative sets of legal rules which constrain government and political action. At a higher level, it offers strong normative guidance to legal decision-makers, as they go about enacting various legal norms and mechanisms, by allowing for the consideration of practical, impact-centric aspects.

Buchanan and Tullock’s framework rests on two constituent parts – decision-making/decisional costs and external costs. Essentially, decisional costs refer to the costs that must be incurred in order to build a consensus across multiple actors when collective action is to be taken. If a particular legal rule requires a broader consensus inasmuch as more and more actors need to agree in order for there to be a final enactment, then decisional costs will be higher.

For example, let us take a situation with ‘N’ number of individuals in a collective. Na is the number of individual actors who need to arrive at a consensus in order to enact a legal rule. If Na is a low number, then there is going to be little real bargaining amongst the members of this decision-making group, i.e., the costs of arriving at a consensual bargain are going to be low. However, if Na is a high number or if it nears unanimity, then individual investment in real bargaining becomes more rational, thereby making the real costs higher.

The decisional cost function can be represented as:

D1 = f (Na), i = 1, 2, …, N.

Na ≤ N.

[D1 = Costs that the ith individual actor incurs when participating in a collective decision-making process.]

On the other hand, external costs refer to the costs incurred by a particular actor as the result of the enactment of a legal rule that may be detrimental to their interests. In other words, external costs are the costs that are incurred by an actor as a result of the action of others.

Let us take the same example with ‘N’ number of individuals; Na is the number of individual actors who need to agree in order for the enactment of a legal rule. Now, an external cost will be incurred by an individual actor each time a decision contrary to that actor’s interests is made for the collective entity. Thus, if Na is a low number, then the probability of incurring external costs is higher as consensus on a rule can be reached without substantive real bargaining. Alternatively, if Na is a higher number, each individual actor will have more bargaining power to protect a wider set of their interests, thereby lowering the probability of incurring external costs.

The external costs function can be represented as:

E1 = f (Na), i = 1, 2, …, N.

Na ≤ N.

[E1 = Costs that the ith individual actor incurs due to the actions of actors other than themselves.]

Decisional costs and external costs, according to Buchanan and Tullock, exist in an inversely proportional relationship. The higher the decisional costs (i.e., the more actors’ consent needed for the enactment of a particular legal rule), the lower will be the external costs and vice versa. This is based on the premise that if you need a broader consensus before a particular act, then the negative externalities of that act (i.e., external costs) will be proportionally lowered.

Constitutional Economics and Delegated Legislation: The Case of the Indian Telecommunications Bill, 2022

The Indian Executive is frequently charged with pushing through legislative proposals that enact wholesale transfers of plenary legislative powers to administrative departments. The Bill is no different. In this section, I will demonstrate, using the Buchanan-Tullock framework, that the legislative policy that the Bill enacts vis-à-vis subordinate legislation is normatively undesirable.

The problem with the Bill becomes clear when one looks at its provisions related to public emergencies and national security, namely Sections 24 and 25, read with Section 41 (Power to Make Rules). Section 24(2) grants the Central Government and the State Governments wide discretionary powers that allow them to possibly break end-to-end encryption and suspend telecommunication services in toto at their subjective satisfaction. Further, Section 25(1) allows the Central Government absolute authority to take, via a notification, “such measures as are necessary” if it is satisfied that “it is necessary or expedient to do so in the interest of national security, friendly relations with foreign states or in the event of war”.

On the issues involving public safety and national security, the Bill does not lay down a legislative policy of any kind which can constrain administrative action. Instead, it grants a blank cheque to the Executive to legislate freely on these issues under Sections 24 and 25, read with Section 41. This is in stark contrast to the approach followed in other jurisdictions, such as the United Kingdom and the United States. Furthermore, it is inconsistent with settled doctrine on delegated legislation under Indian administrative law.

We can look at the Bill from the perspective of the Buchanan-Tullock framework. Enacting a clear legislative policy on public safety and national security issues, something that the Bill fails to do, would incur decisional costs. Parliament would have to deliberate on setting standards that are appropriate and that can limit administrative discretion. Further, Parliament might also have to incur costs in enacting mechanisms for oversight. Thus, from an exclusively decisional costs perspective, it would make intuitive sense to transfer decision-making on these issues to the Executive by providing for broad discretionary powers.

For ease of comparison, we can express the contrast in terms of the decisional cost function. In the Indian Parliament, you require the consent of 272 members of the House of the People (Lok Sabha) (total number of elected members being 545) and 117 members of the Council of States (Rajya Sabha) (total number of elected members being 233) in order to enact legislative policy. Thus, with N being 778, Na is 389. The decisional cost function can be expressed as:

D1 = f (389), i = 1, 2, …, 778.

On the other hand, the decision-making setup is entirely different in a government department. Presumably, the Indian Ministry of Home Affairs will be tasked with framing the subordinate legislation to operationalise the public safety and national security provisions of the Bill. In a ministry, the Minister-in-Charge wields the final authoritative say on matters of policy. Thus, in effect, the Indian Home Minister wields absolute decisional authority vis-à-vis the subordinate legislation that needs to be enacted under the Bill. So, the decisional cost function, for this case, can be expressed as:

D2 = f (1), i = 1.

As one can see, D2 is vastly lower than D1. However, for argument’s sake, let us assume that it is not just the Home Minister whose consent is necessary; other top brass (Ministers of State and officials in the rank of Joint Secretary and above) of the Home Ministry also have a substantive say in the decision-making process. In this case, N = 32 (i.e., total number of Home Ministry officials with decision-making authority). Let us further (charitably) assume that you require three-fourths of these officials to agree in order for subordinate legislation to be enacted under the Bill. Thus, the decisional cost function can be expressed as:

D3 = f (24), i = 1, 2, …, 32.

D3 is still vastly lower than D1. The Executive clearly does not need to bear any substantial decisional costs when enacting legislative policy. Indeed, one can argue that allowing the Executive to exercise plenary legislative power under the delegated legislation provisions of the Bill is a highly efficient solution vis-à-vis letting Parliament set the legislative policy on that issue.

However, this myopic focus on decisional costs can have disastrous consequences from an external costs perspective. The Executive and its decision-making processes are intrinsically different from that of the Legislature. Unlike Parliament, the Government is not mandated to deliberate on rules in a transparent manner; it need not expend any energy in reaching consensual positions through real bargaining. Additionally, the effective decision-maker in the Executive is a singular political functionary (the Home Minister in this case) who has the final say; in the Legislature, on the other hand, MPs are (theoretically) equal to each other and wield similar bargaining and decision-making power. Furthermore, given the scope for infringing citizens’ critical fundamental rights (such as the right to free speech, privacy, and to access information) in this case, giving the Executive extremely wide latitude runs the risk of enabling gross rights violations. Wide discretion would also render the legal position uncertain, which would defeat one of the principal goals of the Bill.

Taking all these factors into consideration, the external costs function (taking N = 32 and Na = 24 as before) can be expressed as:

E1 = f (24), i = 1, 2, …, 32.

As the Buchanan-Tullock framework tells us, this raises the probability of an individual actor incurring external costs with regards to a particular legal decision to high levels. If a single-minded entity like a government department is given vast decision-making power vis-à-vis suspension of telecommunications services, etc., then there is a high risk of society incurring high external costs as a result of legal action being taken without engaging in real bargaining (e.g., consultation, adequate deliberation, and the like). This is normatively undesirable as it eviscerates restraint on government power and militates against the rule of law.

Conclusion

In conclusion, I have demonstrated that the Buchanan-Tullock framework is an adequate tool to study rule-making processes from a positive and a normative perspectives. This framework, as the analysis of the draft Indian Telecommunications Bill, 2022 demonstrates, allows administrative law practitioners to derive valuable insights vis-à-vis administrative rule-making which go beyond positive law and doctrine.


Shreyas Sinha is a third-year B.A., LL.B. (Hons.) student at the National Law School of India University (NLSIU), Bengaluru, India.

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