When promises are credible signals

5 March 2010, 1442 EST

[Cross-posted at Signal/Noise]

While there are all sorts of actions people can take to signal that they are trustworthy, sometimes simply making a promise can get the job done. When two parties will be dealing with each other for an indeterminate amount of time it is advantageous to both if they are viewed as trustworthy. Lying would mean being punished in the future by the other party. In this way, talk isn’t simply cheap–it’s a credible signal.

Case in point, the potential reconciliation of the Health Care Reform bill:

Now, it’s true that the Obama administration achieves its policy goals once the House passes the Senate bill, and doesn’t need a follow-up reconciliation bill except insofar as it’s necessary to guarantee House passage. But the reconciliation bill is going to consist of a lot of popular provisions that Democrats will be eager to vote for — canceling the Cornhusker Kickback, boosting middle-class tax credits, delaying the excise tax and instead raising taxes on the rich.

Moreover, the House is only going to pass the Senate bill first if it gets ironclad assurance on the reconciliation bill from the administration and the Senate. Why would Obama and the Senate nakedly double cross the House? It would mean never being able to pass a piece of legislation again. The reputations of the double-crossers would be destroyed, both inside Washington and, to a lesser extent, nationally. No remotely rational politician, no matter how evil, would do something like that.

What makes (or, would make) this a credible signal of trustworthiness by Senate Democrats?

  1. Shadow of the future: It isn’t known ahead of time when House and Senate Democrats will need to stop cooperating on various measures, therefore both have a strong incentive to keep their word. Now, it is true that come November one or both chambers could come under Republican control, but that doesn’t negate the need for the parties to cooperate across the House and Senate. To some degree, it may actually increase it;
  2. Explicit/Public commitment: By explicitly promising to use reconciliation to enact changes sought by House Democrats, the Senate Democrats would be placing their reputations for trustworthiness on the line. While the shadow of the future certainly creates incentives for them to cooperate regardless of what they may say, explicit declarations make it very difficult for them to rationalize or explain away any non-compliance after the fact. What would be better is if every Senator (or, at least, the 51 needed to pass the measure) publicly declared their intention before the House votes. A blanket promise from only the leadership isn’t as valuable. Sure, the leadership would strengthen their own incentive to ensure a majority supports the measure, but that leaves open the possibility that individual Senators whose constituents are against reconciliation could back out–especially since the majority leader may not even be around come November;
  3. Ability to verify actions: There will be no way to hide whether Senate Democrats follow through on their promise to the House. Reconciliation will require each Senator to publicly declare their support or opposition to the measure. Making it easy to verify if someone follows through on a promise ensures that their incentive to lie is reduced, since they know they’ll be caught and punished in the future. Ambiguity is the enemy of verbal signaling.

(Hat tip Cheap Talk)