More recently, Shepsle and others have turned their attention to the problem of ‘equilibrium institutions’, namely, how actors choose or\ design institutions to secure mutual gains, and how those institutions change or persist over time.
Shepsle’s innovation and the subsequent development of the rational choice approach to institutions have produced a number of theoretical offshoots with potential applications to both comparative and international politics. For example, Shepsle and others have examined in some detail the ‘agenda-setting’ power of Congressional committees, which can send draft legislation to the floor that is often easier to adopt than it is to amend. In another offshoot, students of the US Congress have developed ‘principal-agent’ models of Congressional delegation to regulatory bureaucracies and to courts, and they have problematized the conditions under which legislative principals are able-or unable-to control their respective agents (Moe 1984; Kiewiet and McCubbins 1991). More recently, Epstein and O’Halloran (1999), and others (Huber and Shipan 2002) have pioneered a ‘transaction-cost approach’ to the design of political institutions, arguing that legislators deliberately and systematically design political institutions to minimize the transaction costs associated with the making of public policy.
Although originally formulated and applied in the context of American political institutions, rational-choice institutionalist insights ‘travel’ to other domestic and international contexts, and were quickly taken up by students of the EU. Responding to the increasing importance of EU institutional rules, such as the cooperation and co-decision procedures, these authors argued that purely intergovernmental models of EU decision-making underestimated the causal importance of formal EU rules in shaping policy outcomes. In an early application of rational-choice theory to the EU, for example, Fritz Scharpf (1988) argued that the inefficiency and rigidity of the CAP and other EU policies was due not simply to the EU’s intergovernmentalism, but also to specific institutional rules, such as unanimous decision-making and the ‘default condition’ in the event that the member states failed to agree on a common policy. By the mid-1990s, George Tsebelis, Geoffrey Garrett, and many others sought to model the selection-and in particular the functioning-of EU institutions, including the adoption, execution, and adjudication of EU public policies, in terms of rational choice. Many of these studies drew increasingly on relevant literatures from comparative politics, and are therefore reviewed in the second part of this chapter.