The Constraining, Liberating, and Informational Effects of Nonbinding Law

fox, justin ; stephenson, matthew c.;

We show that nonbinding law can have a constraining effect on political leaders,
because legal compliance is a costly signal to imperfectly informed voters that
the leader is unbiased. Moreover, nonbinding law can also have a liberating
effect, enabling some leaders to take action when they otherwise would have
done nothing. In addition, we illustrate how voters may face a trade-off between
the legal standard that induces optimal behavior of the current leader (i.e., that
most effectively addresses the moral hazard problem) and the legal standard
that optimizes selection of future leaders (i.e., that most effectively addresses
the adverse selection problem). We discuss a range of positive and normative
implications that follow from our analysis