This paper develops a theory of optimal institutional structure for staggered-term
(OLG-type) organizations such as legislative bodies like the US Senate and the Indian Rajya Sabha.
Our model is a simple stochastic game of a particular kind of multi-principal, multi-agent dynamic
relationship. It captures interactions in each of an infinite number of periods on the one hand,
amongst two or more legislators (legislative policy-making), and on the other hand between each
legislator and his principal/voters (elections). Two key institutional features of these interactions
are jointly determined by the principals (from the distinct electoral districts) when the legislature
is founded, at the constitutional moment. We emphasize two main results. First, the principals
will agree to institute a mechanism that endows (imperfectly informed) legislators in each period
with all the required information about the history of play in the legislature. Transparency of agentactions
to agents (in order to enable agents to hold each other to account) is a key and robust feature of
the principal-optimal institutional structure. Second, under some circumstances, the principals will
be indifferent to the structure of legislative procedures (which determine the allocation of agenda
power amongst the agents). We apply our results to the US Senate.
