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King’s 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 King’s 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 Polanyi’s 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 neo—Marxist 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 Popper’s 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 Sen’s 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: 913–30.*

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: 549–52.*

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.**

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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 Endogenizer’s 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) **

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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/ *

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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 **

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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) What’s 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 Brennan’s 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’

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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