A New Handbook of Political Science

By Robert E. Goodin; Hans-Dieter Klingemann | Go to book overview

Chapter 28
Political Economy: An Overview

James E. Alt Alberto Alesina

TRADITIONALLY, economic behavior meant people making utility-maximizing exchanges, and political behavior meant people voting and joining interest groups. Of course, there were institutions. Exchanges took place in markets, which are institutions. Voting and lobbying suggest the existence of legislatures and majoritarian procedures. But the institutions were all exogenous and moreover, the economic and political institutions were seen as separate, not as part of the same overall structure surrounding human interaction. No more. This chapter surveys a field that has grown out of rejecting both the exogeneity of institutions and the separation of economics and politics, which have come to be seen as not just dimly linked, but intextricably interconnected.

In this chapter "political economy" refers to research which attempts to answer simultaneously two central questions: how do institutions evolve in response to individual incentives, strategies, and choices, and how do institutions affect the performance of political and economic systems? It uses an economic approach, constrained maximizing and strategic behavior by self-interested agents, to explain the origins and maintenance of political processes and institutions and the formulation and implementation of public policies. At the same time, by focusing on how political and economic institutions constrain, direct, and reflect individual behavior, it stresses the political context in which market phenomena take place and attempts to explain collective outcomes like production, resource allocation, and public policy in a unified fashion. In contrast to either economics or political science in isolation, this positive political economy emphasizes both "economic" behavior in the political process and "political" behavior

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