Abstract

The separation of the legislative, executive and judiciary powers is a key principle in most democratic constitutions. We analyze the costs and benefits of separating legislature and executive in an incomplete contracts model: The executive can decide to implement public projects. Under separation of powers, the legislature sets up a decision-making framework that leaves the executive with the residual decision-making rights. Separation of powers is the more beneficial, the larger the danger of extreme policy preferences of the residual political decision-maker.