Forty-three of the fifty states of the United States have granted item veto authority to their governors as part of state constitutions. In this paper, I test four explanations of why and when a legislature would cede institutional power. Using data from 1865 to 1994, I show that these measures are most likely proposed by fiscal conservatives who fear the loss of power in the future; in order to protect their interests for those periods when they will be in the minority, therefore, they seek to obtain institutions such as the item veto which will limit future, liberal legislatures. The results therefore shed light on two important substantive areas. First, by endogenizing budgetary institutions, it clarifies that they are not necessarily adopted for economic efficiency. Second, it provides evidence in support of theories which have posited that electorally weak groups will heavily ‘insulate’ policies in periods in which they momentarily hold power (e.g. Moe 1989, de Figueiredo 2000.

Scholars argue that electoral uncertainty is a crucial factor that influences policy implementation: current holders of public authority, nervous that they might lose their position, seek to insulate the agencies they create so that policies will survive their creators. These theories, however, ignore crucial variation in the electoral prospects of groups competing for public authority. In this paper, I examine the effect of electoral volatility on the degree to which groups in power will dismantle their opponent's agencies and programs and insulate their own policies from such destructive behavior. Through the analysis of two repeated games, I derive four propositions which fully characterize the conditions under which cooperative behavior can provide stability in the face of electoral uncertainty and instability. First, I show that if gains from cooperation are sufficiently large, compromise and cooperation can occur in the face of uncertainty. Second, I show that electoral uncertainty increases the possibility of cooperation, a result counter to the informal literature. Third, when electoral uncertainty is low, only one group—that with a low probability of electoral success—will insulate their programs. Finally, as electoral uncertainty increases, a wider set of the parameter values support the extreme cases of either both insulating or not insulating. I conclude by discussing some implications, examples and potential further extensions of the models.