Political Economy for Public Policy

✍ Scribed by Ethan Bueno de Mesquita

• Publisher: Princeton University Press
• Year: 2016
• Tongue: English
• Leaves: 426
• Category: Library

✦ Synopsis

This textbook uses modern political economy to introduce students of political science, government, economics, and public policy to the politics of the policymaking process. The book's distinct political economy approach has two virtues. By developing general principles for thinking about policymaking, it can be applied across a range of issue areas. It also unifies the policy curriculum, offering coherence to standard methods for teaching economics and statistics, and drawing connections between fields.

The book begins by exploring the normative foundations of policymaking—political theory, social choice theory, and the Paretian and utilitarian underpinnings of policy analysis. It then introduces game theoretic models of social dilemmas—externalities, coordination problems, and commitment problems—that create opportunities for policy to improve social welfare. Finally, it shows how the political process creates technological and incentive constraints on government that shape policy outcomes. Throughout, concepts and models are illustrated and reinforced with discussions of empirical evidence and case studies.

This textbook is essential for all students of public policy and for anyone interested in the most current methods influencing policymaking today.

• Comprehensive approach to politics and policy suitable for advanced undergraduates and graduate students
• Models unify policy curriculum through methodological coherence
• Exercises at the end of every chapter
• Self-contained appendices cover necessary game theory
• Extensive discussion of cases and applications

✦ Table of Contents

Contents
Policy Applications
Preface
For Whom Is This BookWritten?
AWord on Tone and Technicality
Acknowledgments
Introduction
Three Goals
The Role of Models
Why Rationality?
I NORMATIVE FOUNDATIONS
1 Normative Frameworks
1.1 What Is a Normative Framework?
1.1.1 Private vs. Public Morality
1.2 Utilitarianism
1.2.1 Why Be a Utilitarian?
1.2.2 Some Problems for Utilitarianism
1.3 Egalitarianism
1.3.1 Equality of Outcomes
1.3.2 Equality of Opportunity
1.4 Kantian Deontology
1.4.1 Deontology and the Challenges to Utilitarianism
1.4.2 Challenges for Deontological Thinking
1.5 Libertarianism
1.5.1 Why Be a Libertarian?
1.5.2 Some Problems for Libertarianism
1.6 Takeaways
1.7 Further Reading
1.8 Exercises
2 Collective Goals
2.1 Rational Individuals
2.2 Aggregation Procedures
2.3 Evaluative Criteria for Aggregation Procedures
2.3.1 Transitivity of Social Preferences
2.3.2 Unanimity
2.3.3 Independence of Irrelevant Alternatives
2.4 Arrow’s Theorem
2.5 Social Decisions Instead of Social Preferences
2.6 The Public Interest?
2.6.1 Only Two Alternatives: May’s Theorem
2.6.2 Ruling Out Some Collections of Preferences: The Median Voter Theorem
2.6.3 Intensity of Preferences
2.6.4 Agreement
2.7 Takeaways
2.8 Further Reading
2.9 Exercises
3 Pareto Concepts
3.1 Pareto Concepts
3.2 From Pareto Efficiency to Pareto Improvements
3.3 A Model of Policies and Preferences
3.3.1 Actions and Transfers
3.3.2 Quasi Linearity: A Bridge from Pareto Efficiency to Pareto Improvement
3.4 A Bridge Too Far?
3.4.1 Limited Transfers and Distributional Concerns
3.4.2 Non Quasi Linear Preferences
3.5 Relationship to Cost-Benefit Analysis
3.6 Are Pareto Improvements Unambiguously in the Public Interest?
3.7 Takeaways
3.8 Further Reading
3.9 Exercises
3.10 Appendix: Proof of Theorem 3.3.1
Summing Up Normative Foundations
II SOCIAL DILEMMAS
4 Externalities
4.1 Collective Action
4.1.1 The Social Dilemma
4.1.2 Interpretations
4.2 Public Goods
4.2.1 Comparison to the First Best or Utilitarian Optimum
4.2.2 Interpretation
4.2.3 Concentrated vs. Diffuse Interests
4.3 The Tragedy of the Commons
4.3.1 A Pareto Improvement
4.3.2 The First Best
4.3.3 Interpretation
4.4 Policy Interventions
4.4.1 The Failure of Persuasion
4.4.2 Pigovian Subsidies and Taxes
4.4.3 Regulation
4.5 The Theory of the Second Best
4.5.1 The Second Best Pigovian Subsidy
4.6 Alternative Responses
4.6.1 Altruism
4.6.2 AMarket in Externalities
4.6.3 Ongoing Relationships and Self Organization
4.7 Takeaways
4.8 Further Reading
4.9 Exercises
5 Coordination Problems
5.1 Coordination Failure
5.1.1 Interpretation
5.2 Coordination Traps
5.2.1 A Basic Model of Coordination Traps: Investment in Developing Countries
5.2.2 AModel of Bank Runs
5.2.3 AModel of Revolutions
5.2.4 Interpretation
5.3 Policy Responses
5.3.1 Communication
5.3.2 Short Run Intervention
5.3.3 Insurance and the Second Best
5.4 Takeaways
5.5 Further Reading
5.6 Exercises
6 Commitment Problems
6.1 A Model of Conflict
6.1.1 Inefficient Conflict
6.1.2 Interpretation
6.2 The Hold-Up Problem
6.2.1 Interpretation
6.3 Policy Responses
6.4 Takeaways
6.5 Further Reading
6.6 Exercises
Summing Up Social Dilemmas
III CONSTRAINTS ON GOOD GOVERNANCE
7 Strategic Adjustment
7.1 Strategic Adversaries
7.1.1 Do Terrorists Really Strategically Adjust?
7.1.2 TheWar onDrugs
7.2 Incentivizing Multiple Tasks
7.2.1 High Stakes Testing
7.3 Takeaways
7.4 Further Reading
7.5 Exercises
8 Dynamic Inconsistency
8.1 Time Inconsistency
8.1.1 The First Best
8.1.2 WhatWill the Government Do?
8.1.3 How Much Will a Consumer Consume?
8.1.4 Is the Government Time Consistent?
8.1.5 Time Inconsistency and Externalities
8.1.6 Rules vs. Discretion
8.1.7 Applications
8.2 Fiscal Manipulation
8.2.1 The First Best
8.2.2 Electoral Risk
8.2.3 Discounting the Future
8.3 When Policy Affects Future Power
8.3.1 The (Political) Second Best
8.4 Takeaways
8.5 Further Readings
8.6 Exercises
9 The Need for Information
9.1 Auctions
9.1.1 Second Price Auction
9.2 Providing a Public Good
9.2.1 Split the Costs
9.2.2 Veto and Split
9.2.3 General Mechanisms
9.2.4 The Second Best
9.3 Regulating a Monopolist
9.3.1 Monopolistic Equilibrium
9.3.2 Regulation with Full Information
9.3.3 Regulation with Uncertainty
9.3.4 An Informed Regulator
9.4 Takeaways
9.5 Further Reading
9.6 Exercises
10 Influence over Elected Officials
10.1 Particularistic Interests
10.2 Special Interests and Campaign Donations
10.3 Electoral Accountability
10.3.1 Rewards of Office
10.3.2 TermLimits
10.3.3 Incentives and Screening
10.3.4 Voter Information
10.3.5 The Risk of Electoral Pandering
10.4 Takeaways
10.5 Further Reading
10.6 Exercises
11 Institutions, Incentives, and Power
11.1 A Selectorate Model
11.1.1 Equilibrium
11.1.2 Outcomes and Institutions
11.2 Institutions and Development
11.2.1 Settler Mortality, Institutions, and the Economy
11.3 Foreign Aid
11.3.1 Poverty Traps and Foreign Aid
11.3.2 Does Foreign AidWork through Poverty Traps?
11.3.3 Effective Aid?
11.3.4 A Political Economy of Foreign Aid
11.4 Takeaways
11.5 Further Reading
11.6 Exercises
Summing Up Constraints on Good Governance
Concluding Reflections on Politics and Policy
IV APPENDICES ON GAME THEORY
A Utility, Strategic-Form Games, and Nash Equilibrium
A.1 Utility
A.1.1 Expected Utility
A.2 Games in Strategic Form
A.2.1 Where to Eat?
A.2.2 Matching Pennies
A.2.3 Cleaning an Apartment
A.2.4 Choosing a Number
A.3 Nash Equilibrium
A.4 Why Nash Equilibrium?
A.4.1 No Regrets and Social Learning
A.4.2 Self Enforcing Agreements
A.4.3 Analyst’s Humility
A.5 Solving for Nash Equilibrium
A.6 Nash Equilibrium Examples
A.6.1 Where to Eat?
A.6.2 Matching Pennies
A.6.3 Cleaning an Apartment
A.6.4 Choosing a Number with Two Players
A.7 Takeaways
A.8 Exercises
B Extensive-Form Games
B.1 Games in Extensive Form
B.1.1 A Model of International Crisis
B.2 Game Trees
B.2.1 International Crisis Game
B.2.2 A Budget Game
B.2.3 The Centipede Game
B.3 Strategies as Complete Contingent Plans
B.3.1 International Crisis Game
B.3.2 Budget Game
B.3.3 The Centipede Game
B.4 Representing an Extensive-FormGame as a Strategic-FormGame
B.4.1 The International Crisis Game
B.4.2 The Budget Game
B.4.3 The Centipede Game
B.5 Nash Equilibria of Extensive-FormGames
B.5.1 International Crisis Game
B.5.2 The Budget Game
B.5.3 The Centipede Game
B.6 Subgame Perfect Nash Equilibrium
B.6.1 Subgame Perfection
B.6.2 Backward Induction
B.6.3 Indifference and Multiple Equilibria
B.6.4 Continuous Choices
B.7 Discounted Payoffs
B.8 Takeaways
B.9 Exercises
Bibliography
Index of Referenced Authors
General Index