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Kings College, University of London

Department of Political Economy

Key Concepts in Contemporary Political Economy

7SSPP101

Course Convenor:

Professor Mark Pennington (MP)

mark.pennington@kcl.ac.uk

Aims

This module aims to equip students with the core background in the interdisciplinary
enquiry of political economy. It will examine the relationship between individual choice,
economic rationality and institutional structure and will enable students to appreciate the
strengths and weaknesses of rival theories in both positive and normative political
economy. Students will develop the theoretical knowledge necessary to engage in debates
about the ability of political and market processes and combinations thereof, to address a
range of economic and ethical dilemmas

Learning Outcomes

By the end of the module students should be able to do the following:

Apply core concepts from economics to understand the nature of political-economic

dilemmas, including rational choice, market failure and government failure
Apply core concepts from politics/political science to understand the nature of
political economic dilemmas including the role of institutions and the importance
of comparison, rival analyses of power, the distinction between positive and
normative theory, rival forms of political justification/legitimacy, and the role of ideal
and non-ideal theory
Appreciate the distinction between formal and informal institutions and rules in
political economic analysis
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Show critical awareness of different conceptions of rationality and their relationship

to institutional structure and social outcomes
Understand the relationship between different ontological and methodological
approaches in the philosophy of social science and their relationship to political
economy research
Demonstrate critical awareness of rival efficiency standards in normative political
economy and apply these standards to debates about the strengths and weaknesses
of markets, democratic processes and combinations thereof
Demonstrate critical awareness of rival ethical standards in normative political
economy
Show in depth awareness of the possible relationships between efficiency and
ethical standards in normative political economy
Apply ethical standards to debate the strengths and weaknesses of markets,
democratic processes and combinations thereof

Teaching Arrangements

Teaching will take the form of lectures, question and answer sessions, and seminar
discussion groups covering key topics in positive and normative political economy.

Assessment and Module Requirements

Students will be assessed on the basis of one extended coursework essay (50% of the total),
and one unseen examination (50% of the total).

The coursework (5000 words max) is to be submitted electronically.

The unseen examination will take place in May/June 2016. Students will be required to
answer three from nine questions over a three hour period.
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Reading
Reading materials will be available in the Kings library and in the University of London
libraries. In addition, all mandatory reading materials will be available via the online learning
system KEATS. Items represented with ** are mandatory readings, those represented with
* are additional readings that students may wish to consult. Additional recommended
readings may also be discussed with the module convener.

Positive Political Economy

This part of the module will explore some key debates in positive political economy which
aim to understand how economic and political processes interact to produce social
outcomes. For the most part, positive political economy is concerned with trying to
understand how the political economic world actually works rather than passing judgement
on whether the operating principles are in some sense desirable. Nonetheless, most positive
analyses of social phenomena draw on some basic assumptions about the character of
human nature. These characteristics are highly contested and the extent to which they may
or may not be subject to change and the implications thereof, is a key consideration for the
debates in normative political economy that will be considered in the second part of the
module. We will also explore some key concerns in the philosophy of social science and the
implications of these debates for the manner in which research in positive political
economy should be carried out.

Week
1. Individual agency and institutional structure
This session will examine the way that different political economic traditions have analysed
the relationship between individual choice and socio/institutional rules. It will distinguish
between formal and informal rules and consider how alternative traditions in political
economy have considered the question of how social rules interact with, and constrain or
facilitate individual agency. Particular attention will be paid to the different analyses
presented by the rational choice, cultural/historical and macro-structural traditions in
political economic thought.

Questions for Discussion:

What are the key differences between formal and informal institutional rules? What are the
key differences between rational choice, cultural/historical and structuralist understandings
about the character of institutional rules? To what extent does a focus on institutional rules
strengthen or weaken the principle of methodological individualism?

Key Reading:
Pennington, M. (2009) Theory, Institutions and Comparative Politics, in Bara, J., Pennington,
M. (2009) Comparative Politics, London: Sage **

North, D. (1990) Institutions, Institutional Change and Economic Performance, Cambridge:

Cambridge University Press (chapters 3,4,5,6, and 7) **

Lichbach, M. (2003) Is Rational Choice Theory all of Social Science? (chapter2) **

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2. Rational choice political economy

Rational choice political economy represents the clearest attempt to use the economic way
of thinking to analyse the role that institutions play in shaping the relationships between
states and markets. More specifically it uses the invisible hand type reasoning that many
economists adopt to understand the dynamics of market processes to analyse the
interaction between politics and economics. This session will examine the rational choice
focus on strategic bargaining, collective action problems and principal agent analysis and
the extent to which these problems both shape and are shaped by institutional/political
structures. The discussion will explore the rational choice focus on incentive structures and
the relationship between this focus and certain core assumptions about human nature and
the character of rationality.

Questions for Discussion:

To what extent can we understand formal and informal institutions as a response to
collective action problems? How do rational choice political economists analyse behaviour
within a given set of institutional rules? How do rational choice political economists
understand questions of comparative political economy? To what extent does rational
choice political economy depend on the assumption of self interested motivation? Does
rational choice political economy imply support for the notion that social institutions are
efficient?

Key Reading:
Acemoglu, D. (2003) Why not a political Coase theorem? Social conflict, commitment and
politics, Journal of Comparative Economics, (31) 620-652 **

Bates, R. (1989/2005) Beyond the Miracle of the Market, Cambridge: Cambridge University
Press. *

Bates, R. (1981/2005) Markets and States in Tropical Africa, Berkeley: University of

California Press (chapters 5, 6 and 7) **

Caplan, B. (2005) From Friedman to Wittman: the transformation of Chicago Political

Economy, Econ Journal Watch, 2 (1): 1-21 *

Lewin, L. (1991) Self Interest and Public Interest in Western Politics, New York: Oxford
University Press *

Munger, M. (2011) Self Interest and Public Interest: the motivations of political actors,
Critical Review, 23 (3): 339-357 *

Olson, M. (1982) The Rise and Decline of Nations, New Haven: Yale University Press *

Olson, M. (1993) Dictatorship, Democracy and Development, American Political Science

Review 87 (3): 567-716 *
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Olson, M. (2000) Power and Prosperity, New York: Basic Books (chapters 1-3) **

Pennington, M (2009) Theory, Institutions and Comparative Politics op cit (chapters 1, 6 and
10 sections on rational choice *

Skarbeck, D. (2011) Governance and Prison Gangs, American Political Science Review, 105
(4): 702-16 **

Tullock, G. (1993) Rent Seeking, Cheltenham: Edward Elgar (chapter 6) **

Wittman, D. (1995) The Myth of Democratic Failure, University of Chicago Press *

3. Bounded rationality and the limits of rational choice political economy

Rational choice approaches often assume a strong conception of individual rationality in
their understanding of political economy and in particular the idea that actors know their
own interests. This session looks at the implications for rational choice analysis of relaxing
these strong rationality assumptions and in particular the recognition that choice occurs in
conditions of uncertainty and what is sometimes known as bounded rationality. The
discussion will centre on the question of whether recognition of bounded rationality
improves the power of rational choice explanation or whether it weakens this power.

Questions for Discussion:

What are the implications for rational choice theory of recognising that people have limited
cognitive/calculational capabilities? What role might formal rules and informal norms play
in the decision practices of cognitively limited actors? What role do ideas and ideologies
play in the decisions of cognitively limited actors? What significance do institutional
feedback mechanisms have in our understanding of how political economic structures affect
the capacity of actors to engage in a process of learning and adaptation? What is the
significance of institutional path dependency to rational choice political economy?

Key Reading:

Alchian, A. (1959) Uncertainty, Evolution and Economic Theory, Journal of Political Economy
58 (3): 211-21 **

Boettke, P. Coyne, C., Leeson, P. (2007) Saving Government Failure Theory from Itself,
Constitutional Political Economy, 18 (2) 127-43 *

David, P. (1985) Clio and the Economics of QWERTY, American Economic Review, 75:332-7
**
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Denzau, A., North, D. (1994) Shared Mental Models: Ideologies and Institutions, Kyklos 47:
3-31 **

Ikeda, S. (2003) How Compatible Are Public Choice and Austrian Political Economy? Review
of Austrian Economics, 16 (4): 63-75 **

Mantzavinos, C. (2001) Individuals, Institutions and Markets, Cambridge: Cambridge

University Press (chapters 5, 6, 7 and 8) *

North, D. (1990) Institutions, Institutional Change and Economic Performance, Cambridge:

Cambridge University Press (chapters 1, 9, 10, 11 and 12) **

Kuran, T. (1995) Private Truths, Public Lies Cambridge, MA: Harvard University Press *

Kuran, T. (2011) The Long Divergence, Princeton, NJ: Princeton University Press *

4. Cultural and historical political economy: the Polanyian challenge

Recognising the role that ideas play in how actors understand their interests is an important
aspect of cultural and historical institutional political economy. Inspired by the contributions
of Karl Polanyi, theorists in this tradition resist the attempt by rational choice analysts to use
economic models based on the self-interest assumption to understand the relationships
between economic processes and political institutions. Polanyian thinkers argue that
economic rationality is culturally conditioned and that market models are inappropriate to
an understanding of institutions based on different operating norms such as reciprocity
and redistribution. This session will examine the Polanyian perspective on the relationship
between states and markets and explore how its insights have been deployed to understand
variations between different political economic regimes.

Questions for Discussion:

How do cultural approaches to political economy understand the significance of formal and
informal institutional rules? How do cultural approaches understand the significance of
comparison in political economy? What sort of evidence do cultural theorists cite to
challenge the universality of the rational actor model? How have rational choice theorists
responded to the challenge offered by Polanyis work? How has the Polanyian perspective
been used by contemporary cultural approaches to political economy?

Key Reading:
Blyth, M. (2004) The Great Transformation in Understanding Polanyi, Critical Review, 16
(1):117-134 **

Chamelee-Wright, E. (1997) The Cultural Foundations of Economic Development, London,

Routledge: (chapter 1) *
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Granovetter, M. (1985) Economic Action and Social Structure, American Journal of Sociology
91 (3):481-510 *

Hejeebu,S., McCloskey, D. (2000) The Reproving of Karl Polanyi, Critical Review, 13 (3-
4):285-314 **

Hejeebu, S., McCloskey, D. (2004) Polanyi and the History of Capitalism: rejoinder to Blyth,
Critical Review, 16 (1): 135-141 **

Lewin, L. (1991) Self Interest and Public Interest in Western Politics, New York: Oxford
University Press *

Lewin, L. (2011) Cooperation for the Common Good: Reply to Symposium, Critical Review 23
(3): 359-369**

Munger, M. (2011) Self Interest and Public Interest: the motivations of political actors,
Critical Review, 23 (3): 339-358**

Mueller, D. (2011) The Importance of Self Interest and Public Interest in Politics, Critical
Review, 23 (3): 321-338*

North, D. (1977) Market and other Allocation Systems in History: The Challenge of Karl
Polanyi, Journal of European Economic History 6(3): 703-16 **

Polanyi, K. (1944) The Great Transformation, Boston, MA: Beacon Press (chapters 3,4,5 and
6) **

Swedberg, R. (1997) New Economic Sociology: What has been accomplished, what is ahead,
Acta Sociologica, 40 (2): 161-182 *

5. Cultural and historical political economy: the power and limits of path dependence
The notion that history matters is a cornerstone of political economy approaches that
emphasise the significance of culture over individual agency. On this view, culture and social
norms provide the lens through which people conceive of their interests and these norms
are often rooted in historical processes. Within this context, many analysts have examined
the significance of institutional path dependence in structuring the relationship between
economic processes and political institutions and the way in which this can constrain
individual agency. This session will examine the role that path dependency models play in
cultural and historical institutional models, the scope they leave for individual agency and
the extent to which they are able to account for instances of institutional change.
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Questions for Discussion

How do cultural approaches to political economy understand the significance of path
dependence? What sort of phenomena might cultural path-dependence be used to explain?
How do cultural analyses of path-dependence account for instances of institutional change?
What differences are there between cultural/historical and rational choice understandings
of institutional path dependence? What scope is there for a synthesis between rational
choice and cultural/historical accounts of path-dependence? Are cultural/historical
accounts methodologically individualist or methodologically holist in orientation?

Key Reading:

Esping-Anderson, G. (1990) The Three Worlds of Welfare Capitalism, Princeton, NJ:

Princeton University Press (chapters 1-3) **

Hall, P. (1992) The Movement from Keynesianism to Monetarism: Institutional Analysis and
British Economic Policy in the 1970s, in Steinmo, S., Thelen, K., Longstreth, F. (1992) (eds.)
Structuring Politics, Cambridge: Cambridge University Press *

Hall, P., Soskice, D. (2001) (eds.) Varieties of Capitalism, Oxford: Oxford University Press
(Introduction) **

Hall, P.(2005) Preference Formation as a Political Process: the case of Monetary Union in
Europe, in Katznelson, I. Weingast, B. (2005) Preferences and Situations, New York: Russell
Sage Foundation.

Lichbach, M. (2003) Is Rational Choice Theory all of Social Science? Ann Arbor: University of
Michigan Press, (chapter 5)*

Pierson, P. (2004) Politics in Time, Princeton, NJ: Princeton University Press (chapter1) **

Steinmo, S. (1993) Taxation and Democracy, New Haven: Yale University Press *

Steinmo, S. (2003) The Evolution of Policy Ideas: Tax Policy in the 20th Century, British
Journal of Politics and International Relations, 5 (2): 206-235 **

Weingast, B. (2005) Persuasion, Preference Change and Critical Junctures: The micro
foundations of a macroscopic concept, in Katznelson, I. and Weingast, B. (2005) Preferences
and Situations, New York: Russell Sage Foundation *

6. Reading Week

7. Structural political economy: neo-Marxism

Macro structural approaches to political economy typically ascribe greater explanatory
weight to the role of large scale social systems which are thought in some sense to
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determine the actions of individuals and social groups and it is these macro-structures that
are given greater causal/ explanatory power relative to the motivations or beliefs of micro-
level actors. Neo-Marxist political economy remains one of the most influential macro-
structural approaches and will be the focus of discussion in this session. Particular attention
will be paid to the differences between instrumental and structural functionalist forms of
Marxist theory.

Questions for Discussion:

What are the major differences between instrumental and functionalist forms of neo-
Marxism? To what extent do instrumental and functionalist forms of neo-Marxism allow
scope for individual agency in their accounts of political economic structures? To what
extent are neoMarxist explanations of the character of the state dependent on the
veracity of Marxist economic theory?

Key Reading:
De Canio, S. (2000) Beyond Marxist State Theory: state autonomy in democratic societies,
Critical Review, 14(2-3): 215-236 *

Hay, C. (1999) Marxism and the State, chapter 8 in Gamble, A. Marsh, R., Tant, T., (eds.)
Marxism and Social Science, Basingstoke: Macmillan **

Jessop, B. (1990) State Theory: Putting Capitalist States in their Place, Cambridge: Polity *

Kenny, M. (1999) Marxism and Regulation Theory, chapter 3 in Gamble, Marsh and Tant op
cit **

Milliband, R. (1969) The State in Capitalist Society, Londond: Wiedenfield and Nicholson *

Miliband, R. (1970) The Capitalist State: reply to Poulantzas, New Left Review, 59: 53-60 *

Miliband, R. (1973) Poulantzas and the Capitalist State, New Left Review, 82: 83-92 *

Pierson, C. (1999) Marxism and the Welfare State, chapter 9 in Gamble, Marsh and Tant op
cit **

Poulantzas, N. (1969) The Problems of the Capitalist State, New Left Review, 58: 67-78 *

Poulantzas, N. (1976) The Capitalist State: A Reply to Milliband and Laclau, New Left Review,
95: 63-83 *

Poulantzas, N. (1978) State, Power, Socialism, London: New Left Books *

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8. Structural Institutionalism: Analytical Marxism and non-Marxist alternatives

Partly in response to the tensions that exist between the instrumental and functionalist
forms of Marxist political economy, structural theorists have increasingly sought to develop
a framework which is less reliant on the basic assumptions of Marxist economics. Some
have sought to develop an approach which tries to specify the relationship between
individual agency and social structure in what has come to be known as Analytical
Marxism. Other structuralist thinkers have retained an approach which privileges the role
of macro-structural processes but in a manner that is not dependent on Marxist economic
categories. This session will examine these perspectives to explore the strengths and
weaknesses of macro-structural approaches.

Questions for Discussion:

How does analytical Marxism differ from conventional Marxist political economy? In what
ways do the analytical Marxists attempt to combine the concerns of methodological
individualism with a structural focus on class? Why have critics of analytical Marxism
suggested that it is not in fact a Marxist approach? How do non-Marxist forms of
structuralism differ from Marxist alternatives? What properties do non-Marxist
structuralists use to replace or compliment a focus on capitalism? What room do non-
Marxist forms of structuralism afford to individual agency?

Key Reading:

Analytical Marxism

Elster, J. (1982) Marxism, Functionalism and Game Theory: the case for methodological
individualism, Theory and Society 11 (4): 453-482 **

Lebowitz, M. (1988) Is Analytical Marxism Marxism? Science and Society, 52 (2): 191-214 *

Mayer, T. (1989) In Defence of Analytical Marxism, Science and Society, 53 (4): 416-441 *

Przeworksi, A. (1985) Capitalism and Social Democracy, Cambridge: Cambridge University

Press *

Przeworski, A. (1985) Marxism and Rational Choice Theory, Politics and Society, 14: 379-409
**

Weldes, J. (1989) Marxism and Methodological Individualism: a critique Theory and Society,
18: 353-86 *

Non Marxist Structuralism

Frieden, J. (1991) Debt, Development and Democracy, Princeton NJ: Princeton University
Press *
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Frieden, J. (1991) Invested Interests: The Politics of National Economic Policies in a World of
Global Finance, International Organisation, 45: 4 **

Rogowski, R. (1989) Coalitions and Commerce, Princeton, NJ: Princeton University Press *

Skcopol, T. (1979) States and Social Revolutions, Cambridge: Cambridge University Press **

Swenson, P. (1991) Bringing Capital Back in or Social Democracy Reconsidered, World

Politics, 43: 513-34 **

9. Philosophy of Social Science and Political Economy: from behaviouralism to neo-

positivism
This session will examine whether theories of political economy arise primarily from the
collection of empirical evidence (the inductive view) or whether the collection of evidence
is always informed by a pre-existing theory or set of theories which must be tested against
the available evidence (the deductive view)? Focussing on Karl Poppers contributions the
discussion will explore what scope there is the testing of theories in a social
science/political economy context?

Questions for Discussion:

Why does Popper reject inductive approaches in favour of the hypothetico-deductive
model? Can the methods of the natural sciences be applied in the context of understanding
political economic phenomena? Why is positivism often associated with the use of
quantitative research methods? In what manner may qualitative research be informed by
Popperian/falsificationist method?

Key Reading:

Caldwell, B. (1994) Beyond Positivism, London: Routledge (chapters 3, 4, 5 and 8) **

Dowding, K. (2001) There Must Be End to Confusion: Policy Networks, Intellectual Fatigue
and the Need for Political Science Methods Courses in British Universities, Political Studies
49 (1): 89-205. *

Friedman, M. (1953) The Methodology of Positive Economics, in Friedman, M. (1953) Essays

in Positive Economics, Chicago: Chicago University Press.*

Hay, C. (2002) Political Analysis, Basingstoke: Palgrave (chapter 2) **

Marsh, D., Smith, M. (2001) There is More than One Way to Do Political Science, Political
Studies 49: 528-41 *
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Mitchell, S. (2009) Complexity and Explanation in the Social Sciences, in Mantzavinos, C.

(2009) (ed.) Philosophy of the Social Sciences, Cambridge: Cambridge University Press *

10. Philosophy of Social Science and Political Economy: Interpretive and Hermeneutic
methods

In contrast to the various positivist schools, supporters of interpretive or hermeneutic

methods reject the idea that political economic inquiry can or should be concerned with the
discovery of law-like or predictable relationships. They emphasise instead the importance
of understanding the subjective meanings that actors attribute to particular events and
how these meanings are communicated across groups of actors and reflected in culture and
social norms. This often leads to an approach based on thick historical description, the case
for which will be examined in this session.

Questions for Discussion:

Why do interpretive or hermeneutic writers reject the case for a predictive form of social
science? What role does inter-subjectivity play in interpretive methods? What do
interpretive researchers refer to when using the term understanding? Does understanding
depend on the existence of a common culture? Is there any scope for combing an emphasis
on interpretation and an appreciation for the contingency of events with some role for
prediction in political economic enquiry?

Key Reading:
Geertz, C. (1977) Interpretation of Cultures: Selected Essays, New York: Basic Books
(especially chapter 1). *

Hayek, F.A. (1957) The Facts of the Social Sciences, in Hayek, F.A. (1952) The Counter-
Revolution of Science, Indianapolis: Liberty Fund.*

Lavoie, D. (1990) (ed.) Economics and Hermeneutics, London: Routledge (chapters 2, 3 and
9) **

Marsh, D., Stoker, G. (2010) Theory and Methods in Political Science, Basingstoke: Palgrave
(chapter 4) **

Sullivan, W. (1979) The Interpretive Turn, in Rabinow, P., Sullivan, W. (eds.) Interpretive
Social Science: A Reader, Berkeley: University of California Press **

11. Synthesis: new institutional political economy and analytic narratives

Positive political economy need not confine itself to any single explanatory framework or
methodological approach and some of the most interesting work in recent years has been
conducted within a tradition known as the new institutionalism. This blends a rational
choice focus on individual incentives, with recognition of the role played by culture, beliefs
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and background structural factors in shaping these incentives. Given the complexity of the
underlying factors that contribute to political economic outcomes theorists of the new
institutionalism have tended to eschew a purely positivist approach which emphasises
testing the predictive power of rival theories, in favour of analytic narratives which
attempt to combine some elements of positivism with an emphasis on historical detail and
in-depth case studies. This session will consider the strengths and weaknesses of the new
institutional approach and the analytic narrative method.

Questions for Discussion:

In what ways can a focus on individual action, culture and social structure be integrated in
political economic analysis? What methods are appropriate to understanding the
relationship between rational choice, cultural norms and macro-structures?
How do analytic narratives differ from descriptive histories of political economic processes?
What are the strengths and weaknesses of the analytic narrative approach?

Key Reading:
Bates, R. (1997) Open Economy Politics: The Political Economy of the World Coffee Trade,
Princton, NJ: Princeton University Press *

Bates, R. (1998) Analytical Narratives, Princeton, NJ: Princeton University Press **

Elster, J. (2000) Rational Choice History: a case of excessive ambition, American Political
Science Review, 94 (3): 685-95 **

Ensminger, J. (1992) Making a Market, Cambridge: Cambridge University Press **

Storr, V. (2004) Enterprising Slaves and Master Pirates: Understanding Economic Life in the
Bahamas, London: Peter Lang. *

Taylor, M. (1989) Structure, Culture and Action, Politics and Society 17: 115-162 *

Van de Walle, N. (2001) African Economies and the Politics of Permanent Crisis, 1979-1999,
Cambridge: Cambridge University Press **

Waterbury, J. (1993) Exposed to Innumerable Delusions, Cambridge: Cambridge University

Press **

12. Review Session on Positive Political Economy

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Semester 2

Normative Political Economy

This part of the course turns to the discipline of normative political economy - the debates
that concern what kind of political economic structures analysts consider to be the most
desirable and the criteria of desirability that should be used to evaluate different
institutional regimes. Though normative analysis is distinct from positive political economy
many of the debates in this field are influenced by the findings of positive analysis with
normative views on the desirability of particular institutional arrangements often influenced
by the experience of how certain types of institution have worked in practice. These debates
are also influenced by views on whether the behavioural traits identified by positive
theorists are open to change and what the implications of such changes might be.

1. Efficiency standards in political economy

Modern economics typically deals with positive or descriptive questions, but when
economists do discuss normative questions they usually do so in terms of economic
efficiency. The early development of political economy as a formal field of study in the late
18th and early 19th century is entangled with the development of utilitarianism. Economic
efficiency standards emerge as an alternative to total social utility as a normative
benchmark for evaluating actions, policies, and institutions. This session will explore the two
most common efficiency standards employed by economists, Pareto efficiency and Kaldor-
Hicks efficiency, as well as Marshallian efficiency.

Questions for Discussion:

What are the differences between the Pareto, Kaldor-Hicks, and Marshallian standards of
efficiency? What do they share in common? What are the strongest objections to each of
them? What are their strengths? What types of preferences should count when evaluating
public policy? What should the role of cost-benefit analysis be in public policy? How
different are these standards from those of utilitarianism?

Key Reading

Buchanan, J. M. (1962). The Relevance of Pareto Optimality, Journal of Conflict Resolution

Vol. 6, pp. 341-54**

Buchanan, J. M. (1996) An Ambiguity in Sens Alleged Proof of the Impossibility of a Pareto

Libertarian, in Moral Science and Moral Order, Indianapolis: Liberty Fund.*

Frank, R. (2000) Why is Cost-Benefit Analysis So Controversial? Journal of Legal Studies, Vol.
29: 91330.*

Friedman, D. (1990) Price Theory: An Intermediate Text, Cincinatti: South-Western

Publishing. (Chapter 15)**
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Hausman, D. and McPherson, M. (2007) The Philosophical Foundations of Mainstream

Normative Economics, in The Philosophy of Economics: An Anthology, 3rd ed., Cambridge:
Cambridge University Press **

Kaldor, N. (1937) Welfare Propositions of Economics and Interpersonal Comparisons of

Utility, Economic Journal, vol. 49: 54952.*

Landsburg, S. (1993) The Armchair Economist. New York: Free Press. (Chapter 10)**

Robbins, L. (1932) The Nature and Significance of Economic Science. London: MacMillan.
(Chapter 6)*

Sen, A. (1970) The Impossibility of a Paretian Liberal, Journal of Political Economy Vol. 78.*

2. Micro-economics: market failure and government failure

The theory of market failure emerged as an application of the economic efficiency standard
in the middle decades of the 20th century, and is now a standard part of the corpus of
economics. The theory of government failure arose largely as a response to the concept of
market failure in the literature. This session will explore both ideas and sample the
mechanisms posited by both literatures, with an emphasis on issues of imperfect
information, monopoly and public goods.

Questions for Discussion

What is the significance of the first and second welfare theorems in the development of
modern economics? Should the fundamental welfare theorems serve as the benchmark for
evaluating market outcomes or government policies? What are the limitations of market
failure arguments? What are the limitations of government failure arguments? Which form
of failure is likely to be larger or more problematic?

Key Reading:

Akerlof, G. (1970) The Market for Lemons, Quarterly Journal of Economics Vol. 84, No. 3, pp.
488-500.*

Bator, F. (1958) The Anatomy of Market Failure, Quarterly Journal of Economics 72, pp. 351-
79 **

Buchanan, J. (1999) Politics without Romance and, Rent Seeking and Profit Seeking, in The
Logical Foundations of Constitutional Liberty. Indianapolis: Liberty Fund **

Demsetz, H. (1969) Information and Efficiency: Another Viewpoint, Journal of Law and
Economics Vol. 12, No. 1, pp. 1-22 **

Demsetz, H. (1982) Barriers to Entry, American Economic Review, 72:1, pp. 47-57*

Friedman, D. (1990) Price Theory: An Intermediate Text, Cincinatti: South-Western

Publishing. (Chapters 16, 17, 19)*
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Hayek, F.A. (1948) The Meaning of Competition, in Hayek, F.A. (1948) Individualism and
Economic Order, Chicago: Chicago University Press

Hayek, F.A. (1968) Competition as a Discovery Procedure, In New Studies in Philosophy,

Politics, Economics and the History of Ideas, F.A. Hayek. Chicago: University of Chicago
Press.*

Stiglitz, J. (1991) The Invisible Hand and Modern Welfare Economics NBER Working Paper*

Stiglittz, J. (1994) Whither Socialism? Cambridge MA: MIT Press (chapters 1, 2 and 4) *

Tullock, G. (1974) Public Decisions as Public Goods Journal of Political Economy Vol. 79, No.
4, pp. 913-918 **

Tullock, G. (1962) The Welfare Costs of Tariffs, Monopolies, and Theft Western Economic
Journal, Vol. 5, No. 3, pp. 224-232**

Wittman, D. (1989) Why Democracies Produce Efficient Results, Journal of Political Economy
Vol. 97, No. 6, pp. 1395-1424.*

3. Economics, Externalities and Institutions

Externalities, costs or benefits not borne by a decision maker, are central to welfare
economics. This session will explore the role of externalities in political economy analysis
through the lens of the 20th century debate about the government vs. market responses to
externalities. In the last few decades this debate has centred on the Coase theorem, which
we will focus on in detail.

Questions for Discussion

How important is the Coase theorem for institutional analysis? What is the significance of
the joint production of externalities? What types of externalities are easier to solve through
market mechanisms? What types of externalities are easier to solve through regulation? Do
transaction costs provide an adequate explanation for inefficiency?

Key Reading:

Buchanan, J. M. (1984) [1999] Rights, Efficiency, and Exchange: The Irrelevance of

Transaction Costs, in The Logical Foundations of Constitutional Liberty. Indianapolis: Liberty
Fund*

Buchanan, J. M. (1962) Politics, Policy, and the Pigovian Margins, Economica Vol. 28, pp.
17-28**

Calabresi, G. (1991) The Pointlessness of Pareto: Carrying Coase Further, The Yale Law
Journal, vol. 100, no. 5, pp. 1211-1237 *

Coase, R.H. (1960) The Problem of Social Cost, The Journal of Law and Economics, 1-44.**
 17

Demsetz, H. (2003) Ownership and the Externality Problem, Property Rights: Cooperation,
Conflict, and Law, ed. Terry Anderson and Fred McChesney, Princeton: Princeton University
Press**

Friedman, D. (1990) Price Theory: An Intermediate Text, Cincinatti: South-Western

Publishing. (Chapter 18)**

Martin, A. (2013) Where Are the Big Bills? Escaping the Endogenizers Dilemma, Review of
Austrian Economics (forthcoming)*

Medema, S. and Zerbe, R. (1990) The Coase Theorem, in The Encyclopedia of Law and
Economics, B. Bouckaert and G. De Geest, eds. Edward Elgar Publishing.*

Medema, S. (2009) The Hesitant Hand, Princeton, NJ: Princeton University Press (chapters 5,
6 and 7)*

Pigou, A.C. (1920) The Economics of Welfare. London: MacMillan. (Part II, Chapter 9)*

4. Macro-economics: market failure and government failure

In addition to those theories which focus on the efficiency or otherwise of individual

markets within a political economic structure, normative political economy also examines
issues of macro-economic stability or instability and the extent to which governments
should intervene in markets to promote stability. The discussion will focus on four different
theories of macro-economic failure Keynesian, New Classical, Virginia Political Economy
and Austrian. Attention will focus on the underlying rationality and motivational
assumptions adopted by the various theories and how these are reflected in their differing
normative prescriptions for what the state should or should not do to promote stability.

Questions for Discussion:

What role does uncertainty play in Keynesian accounts of macro-economic crisis and what
role do Keynesians believe the state can and should play in the light of this uncertainty?
Why do New Classical theories downplay the impact of state intervention on macro-
economic outcomes? What role does the concept of fiscal illusion play in Virginia school
accounts of macro-economic crisis? Given their common emphasis on uncertainty and
subjective expectations, why do Austrians arrive at such radically different normative
conclusions to those of Keynesians?

Key Reading:

Akerlof, G., Shiller, R. (2009) Animal Spirits: How Human Psychology Drives the Economy and
Why it Matters for Global Capitalism, Princeton, NJ: Princeton University Press **

Buchanan, J.M., Wagner, R.E. (1977/2000) Democracy in Deficit, Indianapolis: Liberty Fund
(chapters 6, 7 and 9) **
 18

Koppl, R. (2014) From Crisis to Confidence: Macro-Economics After the Crash, London:
Institute of Economic Affairs **

Vaughn, K.I., Wagner, R.E. (1992) Public Debt Controversies: An Essay in Reconciliation,
Kyklos 45 (1): 37-49 *

White, L. (2012) The Clash of Economic Ideas, Cambridge: Cambridge University Press
(chapter 15) **

5. Distributive Justice and Political Economy

In this session we turn towards those standards of evaluation that focus more on
distributional concerns and different notions of rights. Focussing on the works of Rawls,
Dworkin, Nozick and Hayek the discussion will probe the interrelationships between
different moral conceptions (utilitarianism, consequentialism and deontology) and how
these relate to issues of institutional efficiency and/or practicality. Particular attention will
be paid to rival conceptions of the relationship between the state and the market in
contemporary liberal political theory.

Questions for Discussion

What sort of moral arguments do Rawls, Dworkin, Nozick and Hayek base their arguments
upon? On what grounds do Rawls and Dworkin favour a welfare state as part of a justice
satisfying political economy? What role do questions of political economic
efficiency/feasibility play in the arguments of Rawls and Dworkin? On what grounds do
Nozick and Hayek favour a strictly limited role for the state vis a vis the market? What role
do questions of efficiency/feasibility play in the arguments of Nozick and Hayek?

Key Reading:

Fleischacker, S., A Short History of Distributive Justice, Cambridge, Harvard University Press,
2005 *

Dworkin, R. (1981) What is Equality? Part 1 Equality of Welfare, Philosophy and Public
Affairs 10 (3): 185-248 *

Dworkin, R. (1981) What is Equality? Part 2 Equality of Resources, Philosophy and Public
Affairs 10 (4): 283-345 **

Hayek, F. A. Social or Distributive Justice and The Pretence of Knowledge, in Nishiyama, C.

& Leube, K., The Essence of Hayek, Chapters 5 & 14 **

Nozick, R. (1974) Anarchy, State and Utopia, New York, Basic Books, esp. Part II, 1 and 2
**

Rawls, J. (1971) A Theory of Justice, Part I, Chapter 3 20, 22, 24-26 **

http://plato.stanford.edu/entries/justice-distributive/ *
 19

Tomasi, J. (2012) Free Market Fairness, Princeton, NJ: Princeton University Press (chapter
3)*

6. Reading Week

7. Ideal versus non-ideal theory in normative evaluation

What kind of political economic relationships are ideal from an ethical point of view and to
what extent should these conceptions be influenced by recognition of real world
constraints? These are the questions that lie at the heart of debates about the status of
ideal and non-ideal theory in ethical evaluation. Ideal theory attempts to define the
contours of an ideal/just society and to use these principles as a benchmark against which
to judge the status quo. Non-ideal theory focuses on obstacles to achieving the relevant
ideal standards and the type of measures that might be justified in moving towards them.
Within this context, however, there is considerable debate about the relationship between
social facts and ethical ideals with some thinkers suggesting that those aspects of the
human condition which cannot be changed must be built into our conceptions of what an
ideal/just society might actually look like.

Questions for Discussion:

What role do motivational constraints and incentives play in the distinction between ideal
and non-ideal theory? What role do informational/knowledge constraints play in the
distinction between ideal and non-ideal theory? To what extent should facts about the
requirements of socio-economic coordination inform political ideals? If facts about the
requirements of socio-economic coordination are allowed into analyses of political ideals is
the distinction between ideal and non-ideal theory tenable?

Key Reading:

Cohen, G. (2003) Facts and Principles, Philosophy and Public Affairs, 31 (3): 211-45 **

Brennan, G., Pettit, P. (2005) The Feasibility Constraint, in The Oxford Handbook of
Contemporary Philosophy, Johnson, F., Smith, M. (2005) (ed.) *

Goodin, R. (1995) Political Ideals and Political Practice, British Journal of Political Science 25
(1): 37-56 *

Farelly, C. (2007) Justice in Ideal Theory, Political Studies, 55 (4) 844-64 **

Lomasky, L. (2005) Libertarianism at Twin Harvard, Social Philosophy and Policy 22 (1): 178-
99 **

Mason, A. (2004) Just Constraints, British Journal of Political Science, 34 (2): 251-68 **
 20

Miller, D. (2013) Political Philosophy for Earthlings, chapter 1 in Miller, D. (2013) Justice for
Earthlings, Oxford: Oxford University Press **

Schmidtz, D. (2011) Non-ideal Theory: What it is and What it Needs to be, Ethics, 121 (4):
772-796 **

Shapiro, T. (2003) Compliance, Complicity and the Nature of Non-ideal Conditions, Journal
of Philosophy, 329-55 *

Simmons, J. (2010) Ideal and Non-ideal Theory, Philosophy and Public Affairs, 38 (1): 5-36 *

Stemplowska, Z. (2008) Whats Ideal About Ideal Theory? Social Theory and Practice, 74 (3)
319-40 *

Tomasi, J. (2011) Feasibility, Normativity and Institutional Guarantees, chapter 7 in Tomasi,

J. (2011) Free Market Fairness, Princeton NJ: Princeton University Press *

8. Ideal Theory, Non-Ideal Theory and Comparative Institutions Analysis

Whether one supports an ideal theoretic or a non-ideal view of the evaluative standards
that normative political economy should embrace, judgements about which political-
economic regime types we ought to prefer are often informed by a comparative
institutions account. Comparative institutions analysis in normative evaluation involves the
comparison of different regime types on the same terms. Focussing on the rival
contributions of Cohen and Brennan the discussion will focus on the importance of
symmetrical idealisation in normative analysis and the extent to which thinkers follow this
rule in their evaluation of different political economic regimes.

Questions for Discussion:

On what grounds does Cohen argue that capitalism is less desirable than socialism as a
political economic ideal? On what grounds does Brennan contend that socialism is less
desirable than capitalism as an institutional ideal? To what extent do Cohen and Brennans
arguments focus on the qualities of people as opposed to the qualities of institutions? Why
is symmetrical idealisation important in the context of normative evaluation?

Key Reading:

Brennan, J. (2014) Why Not Capitalism? London: Routledge **

Cohen, G. (2008) Why Not Socialism? London: Routledge **

9. Constitutional Political Economy

Constitutional political economy describes the belief that constitutional rules demarcating
the appropriate scope of government can be an effective means of controlling the state and
guaranteeing the rights of individuals. Both Buchanan and Rawls use veil of ignorance
 21

devices to formulate notions of an ideal constitution which would constrain actors after the
veil has been removed. For Buchanan such rules must meet the criteria of unanimity but
this raises important questions concerning the decision-making costs involved and the
practicality of such arrangements. Egalitarian/ Rawlsian critics have also contended that the
principle of unanimity and the conceptualisation of politics as a form of exchange serve to
privilege the status quo.

Questions for Discussion:

Can a constitution be an effective means of controlling the state and securing individual
rights? How does Buchanan model politics as a form of exchange and is this a useful way of
conceptualising political activity? Why does Buchanan argue that constitutional agreement
must be unanimous? What might be the pre-requisites of unanimous agreement? Does
constitutional political economy have an inherent conservative bias? How do constitutional
political economists approach the concept of power?

Key Reading:

Barry, B. (1965) Political Argument. London: Routledge, Chapters XIV and XV **

Brennan, G. and Buchanan, J. M. (1985) The Reason of Rules, Cambridge: Cambridge

University Press, particularly Chapter 1. *

Buchanan, J. M. and Tullock, G. (1962) The Calculus of Consent, Ann Arbor: University of
Michigan Press, particularly Chapters 1 and 17 **

Buchanan, J. M. (1974) The Limits of Liberty, Chicago: University of Chicago Press,

particularly Chapter 4 **

Meadowcroft, J. (2012) Exchange, unanimity and consent: a defence of the public choice
account of power, Public Choice, online first, doi: 10.1007/s11127-012-9925-0 **

Samuels, W. J. (1973) Adam Smith and the Economy as a System of Power, Review of Social
Economy, 31, 123-37 *

Vanberg, V. (2004) The Status Quo in Contractarian-Constitutional Perspective,

Constitutional Political Economy, 15, 153-70 *

10. Review Session on Normative Political Economy

11. Course work preparation

12. Exam Preparation